Professional Documents
Culture Documents
AUDITEVIDENCE
Review Questions
1.
2.
3.
4.
5.
6.
7.
8.
Having the confirmation letters printed on the clients letterhead and signed
by a client officer.
Being careful to be assured of reliable addresses for recipients; that is, being
assured that the confirmations are not misdirected (for example, to a clients
accomplices in fraud).
Asking confirmation of information that recipient can supply, like the
amount of a balance or the amounts of specified invoices or notes (not the
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d.
e.
9.
Factual evidence is direct evidence, in that conclusions may be drawn from the
evidence without further corroboration. An example of factual audit evidence is
physical observation of inventory for existence. Inferential evidence is indirect,
in that direct conclusions cannot be drawn from the evidence. The auditor
typically examines other evidence to further corroborate the inferences drawn.
An oral statement by a product manager that one or more products are fully
saleable and not obsolete is an example of inferential evidence. The auditor may
perform inventory turnover tests and/or determine the date of last sale of the
product to further corroborate the product managers statement.
10. Sufficiency of audit evidence is a matter of audit judgment. Materiality and the
quality of internal control are important ingredients in determining sufficiency.
If internal control produces over sales processing and cash receipts, for example,
are effective, the auditor may elect to confirm fewer customers accounts
receivables than under conditions of weak internal control.
11. Physical evidence tests the existence assertion. Examples of physical evidence
are inventory observation, examination of securities, inspection of plant asset
additions, and count of cash on hand.
12. The quality of existing internal control is the major factor supporting the
strength of documentary evidence. A voucher produced under conditions of
strong internal control over the processing of vendors invoices, for example,
possesses greater validity and is therefore stronger evidence than vouchers
produced under weak control conditions.
13. Auditing standards define an accounting estimate as an approximation of a
financial statement element, item or amount. Estimates are used because (1) an
amount is uncertain pending specific future events or (2) relevant data cannot be
accumulated on a timely, cost-effective basis. Examples of accounting estimates
include allowance for uncollectible accounts, obsolete inventory, useful lives
and residual values of fixed assets, natural resources and intangibles, accruals
for taxes on real and personal property, accruals based on actual assumptions in
pension plans, contract revenue using percentage of completion method,
litigation losses, fair values in nonmonetary exchanges, and current values in
personal financial statements.
Audit Evidence
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d
d
c
4.
5.
6.
c
a
d
7.
8.
9.
d
b
d
10. d
11. a
12. b
13. b
Cases
1.
2.
a.
b.
c.
1.
Types of evidence
Evidential items/sources
d. Letter from creditor
a. Monthly statements
b. Voucher register
c. Audit computation of discounts
in reliability rank
1. External
2. External-internal
3. Internal
4. Mathematical (based on
unaudited data)
2.
c.
a.
d.
b.
1.
2.
3.
4.
Mathematical (based on
unaudited data)
External
External-internal
Internal
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