1. 4/28/2015 CPA JUAN M. GARCIA MERCED EVIDENCE & DOCUMENTATION CONT 4023

2. Audit Evidence Decisions 1. Which audit procedures to use 2. What sample size to select for a given procedure 3. Which items to select from the population 4. When to perform the procedures (timing)

3. Audit Plan It includes a list of the audit procedures the auditor considers necessary. Most auditors use computers to facilitate the preparation of audit plans.  Sample sizes  Items to select  Timing of the tests

4. Audit Documentation Audit documentation is the principal record of auditing procedures applied, evidence obtained, and conclusions reached by the auditor in the engagement.

5. Audit Documentation  Purposes of audit documentation  Ownership of audit files  Confidentiality of audit files

6. 4/28/2015 CPA JUAN M. GARCIA MERCED Purpose Sufficient competent evidential matter is to be obtained trough inspection, observation, inquiries, and confirmations to afford a reasonable basis for a conclusion. Sufficient competent evidential matter is to be obtained trough inspection, observation, inquiries, and confirmations to afford a reasonable basis for a conclusion.

7. 4/28/2015 CPA JUAN M. GARCIA MERCED AUDIT EVIDENCE Any information that corroborates or refutes an assertion. Must be: Any information that corroborates or refutes an assertion. Must be: Competent – relevant and valid (Quality)Competent – relevant and valid (Quality) Sufficient – QuantitySufficient – Quantity There is an inverse relationship between competent and sufficiency. There is an inverse relationship between competent and sufficiency.

8. Six Characteristics of Reliable Evidence 1.Independence of provider 2.Effectiveness of internal controls 3.Auditor’s direct knowledge

9. Six Characteristics of Reliable Evidence 4.Qualification of individuals providing the information 5.Degree of objectivity 6. Timeliness

10. Persuasiveness and Cost In making decisions about evidence for a given audit, both persuasiveness and cost must be considered. The auditor’s goal is to obtain a sufficient amount of appropriate evidence at the lowest total cost.

11. Competence of Types of Evidence  Type of evidence  Independence of provider  Effectiveness of client’s internal controls  Auditor’s direct knowledge  Qualifications of provider  Objectivity of evidence

12. Types of Audit Evidence 1. Physical examination 2. Confirmation 3. Documentation 4. Analytical procedures 5. Inquiries 6. Recalculation 7. Reperformance 8. Observation

13. 4/28/2015 CPA JUAN M. GARCIA MERCED TYPES OF EVIDENCE Physical evidence- provides evidence about existence but needs to be supplemented by other types of evidence. Physical evidence- provides evidence about existence but needs to be supplemented by other types of evidence.

14. Confirmation InformationSource Assets Cash in bank Accounts receivable Notes receivable Owned inventory out on consignment Inventory held in public warehouses Cash surrender value of life insurance Bank Customer Maker Consignee Public warehouse Insurance company

15. Confirmation InformationSource Liabilities Accounts payable Notes payable Advances from customers Mortgages payable Bonds payable Creditor Lender Customer Mortgagor Bondholder

16. Confirmation InformationSource Owners’ Equity Shares outstandingRegistrar and transfer agent Other Information Insurance coverage Contingent liabilities Bond indenture agreements Collateral held by creditors Insurance company Bank, lender, and client’s legal counsel Bond holder Creditor

17. 4/28/2015 CPA JUAN M. GARCIA MERCED TYPES OF EVIDENCE Documents Documents Created outside the company and transmitted directly to the internal auditorsCreated outside the company and transmitted directly to the internal auditors Created outside the company and held by the companyCreated outside the company and held by the company Created and held within the companyCreated and held within the company

18. Documentation It is the auditor’s inspection of the client’s documents and records. Internal documents External documents

19. Analytical Procedures  Understand the client’s industry and business  Assess the entity’s ability to continue as a going concern  Indicate the presence of possible misstatements in the financial statements  Reduce detailed audit tests

20. Inquiries It is the obtaining of written or oral information in response to questions from the auditor.

21. Recalculation It involves rechecking a sample of calculations made.

22. Reperformance It is the auditor’s independent tests of accounting procedures or controls that were originally done.

23. Observation It is the use of the senses to assess activities. The auditor may tour the plant to obtain a general impression of the facilities.

24. 4/28/2015 CPA JUAN M. GARCIA MERCED AUDIT PROCEDURES Timing Timing Nature Nature Extent Extent Cost Cost

25. 4/28/2015 CPA JUAN M. GARCIA MERCED WORKING PAPERS Functions: Functions: 1.Assignment and coordinating audit work 2.Supervising and reviewing the work of assistants 3.Supporting the report 4.Complying with the stds of field work (IIA standards) 5.Planning and conducting the next audit

26. 4/28/2015 CPA JUAN M. GARCIA MERCED OTHER CONSIDERATIONS Confidential natureConfidential nature Ownership of working papersOwnership of working papers

27. 4/28/2015 CPA JUAN M. GARCIA MERCED TYPES OF WORKING PAPERS Administrative working papers Administrative working papers Audit planAudit plan Time budgetTime budget Internal control documentationInternal control documentation Working trial balance Working trial balance Lead schedules Lead schedules Adjusting journal entries Adjusting journal entries

28. 4/28/2015 CPA JUAN M. GARCIA MERCED Types of Working Papers Supporting schedules Supporting schedules Analysis of a ledger account Analysis of a ledger account Corroborating documents Corroborating documents

29. 4/28/2015 CPA JUAN M. GARCIA MERCED ORGANIZATION Current files – one file per year Current files – one file per year Permanent file – preserves working papers that show relatively few or no changes Permanent file – preserves working papers that show relatively few or no changes LeasesLeases Pension plansPension plans Labor contractsLabor contracts Formal agreementsFormal agreements

30. 4/28/2015 CPA JUAN M. GARCIA MERCED Questions?!?!?!?!?!?!?!?