6 - 1 ©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Audit Evidence Chapter 6.

6 - 1©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley

Audit Evidence

Chapter 6


Learning Objective 1

Contrast audit evidence

with evidence used by

other professions.


Nature of Evidence

The use of evidence isnot unique to auditors.

Evidence is also usedby scientists, lawyers,

and historians.



Identify the four audit evidence

decisions that are needed to

create an audit program.


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


Audit Program

It includes a list of the audit proceduresthe auditor considers necessary.

Most auditors use computers to facilitatethe preparation of audit programs.



Specify the characteristics

that determine the

persuasiveness

of evidence.


Persuasiveness of Evidence

Competence

Sufficiency

Combined effect

Persuasiveness and cost


Competence

Relevance

Independence of provider

Effectiveness of internal controls

Auditor’s direct knowledge

Qualifications of individuals

Degree of objectivity

Timeliness



Identify and apply the

seven types of evidence

used in auditing.


Relationships

Auditingstandards

Qualificationsand conduct

ReportingEvidence

accumulation

Types ofevidence

Broadguidelines

Broadcategories


Relationships

Types ofevidence

Auditprocedures

Samplesize

Timingof tests

Items toselect

Specificinstructions


Types of Audit Evidence

1. Physical examination

3. Documentation

5. Inquiries of the client

6. Reperformance

2. Confirmation

4. Analytical procedures

7. Observation


InformationOften Confirmed

Information SourceAssetsCash in bank BankAccounts receivable CustomerNotes receivable MakerOwned inventory out on consignment ConsigneeInventory held in public warehouses WarehouseCash surrender value of life insurance Insurance co.



Information SourceLiabilitiesAccounts payable CreditorNotes payable LenderAdvances from customers CustomerMortgages payable MortgagorBonds payable Bondholder



Information SourceOwners’ EquityShares outstanding Registrar and

transfer agent



Information SourceOther InformationInsurance coverage Insurance companyContingent liabilities Bank, lender, and

client’s counselBond indenture agreements BondholderCollateral held by creditors Creditor


Criteria to DetermineCompetence

Type ofevidence

Independenceof provider

Effectiveness ofclient’s

internal controls

Auditor’sdirect

knowledge

Qualificationsof provider

Objectivityof evidence


Terms and Types of Evidence

Terms Types of Evidence

Examine Documentation

Scan Analytical procedures

Read Documentation

Analytical proceduresCompute

Recompute Reperformance

Foot Reperformance


Terms and Types of Evidence

Terms Types of Evidence

Trace Documentation

Compare Documentation

Count Physical examination

ObservationObserve

Inquire Inquiries of client

Vouch Documentation



Understand the purposes

of audit documentation.


Audit Documentation

Purposes of audit documentation

Ownership of audit files

Confidentiality of audit files



Prepare organized

audit documentation.


Audit File Contentsand Organization

Robinson AssociatesTrial Balance

12/31/2003

Cash $165,237Accounts Receivable 275,050Prepaid Insurance 37,795Interest Receivable 20,493

FinancialStatements andAudit Report

WorkingTrial Balance

AdjustingJournal Entries

ContingentLiabilities

Operations

Liabilities and Equity

Assets

AnalyticalProcedures

Test of Controls& Substantive

TOT

InternalControl

GeneralInformation

AuditPrograms

PermanentFiles


Permanent Files

These files are intended to containdata of a historical or continuing

nature pertinent to the current audit.


Current Files

Audit program

General information

Working trial balance

Adjusting and reclassification entries

Supporting schedules



Describe how e-commerce

affects audit evidence and

audit documentation.


Effect of E-commerce

Audit evidence is increasingly in electronic form.

Auditors use computers to readand examine evidence.

Software programs are typically Windows-based.


Summary of Audit Documentation

Audit documentation is an essentialpart of every audit.

Audit documentation provides a record of the evidence accumulated and the result of the tests.

CPA firms make sure that audit documentationis properly prepared and is appropriate.


End of Chapter 6

6 - 1 ©2003 Prentice Hall Business Publishing, Essentials of Auditing 1/e, Arens/Elder/Beasley Audit Evidence Chapter 6.

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