1. What is audit evidence?

- The gathered information for an audit of a company's financial transactions, internal

control processes, and other elements required for an auditor or certified public
accountant to validate financial statements is known as audit evidence. The amount
and kind of audit evidence evaluated varies greatly depending on the type of company
being audited and the audit's needed scope.
2. What are the factors that affect sufficiency and appropriateness of audit evidence?
- The level of risk of misstatement, importance of the item in regard to financial
accounts, experience obtained during past audits, outcomes of auditing methods, and
kind of information available all impact the auditor's judgment as to what is sufficient
appropriate evidentiary matter.
3. An auditor typically works within economic limits. Explain this statement.
- An auditor's judgment must be established in a fair amount of time and at a
reasonable cost in order to be economically relevant. The auditor determines if the
evidence he has at his disposal, given the constraints of time and money, is adequate
to warrant expressing a judgement.
4. What are the generalizations on reliability of audit evidence?
- Form of evidence
- Qualification of the source
- Internal controls
- Nature of evidence
- Independence of the source
5. Explain the relationship between assertions, audit objectives, and audit evidence.
- When gathering evidence to support financial statement assertions, the auditor creates
particular audit goals that take those assertions into account. When formulating audit
goals, the auditor should evaluate the entity's particular circumstances, followed by
the sort of evidence to be acquired and the audit processes required to get the
evidence.
6. Enumerate, and explain, each audit procedure classified according to purpose and according to
nature.
Audit procedures according to purpose:
- By completing audit procedures to obtain an understanding of the business and its
environment, verify the operating efficacy of controls, and discover substantial
misstatement at the assertion levels, the auditor produces audit evidence on which to
base his audit opinion.
 - Risk assessment processes on their own, which are supplemented by additional audit
procedures in the form of test controls and substantive controls when necessary.
- Where the auditor's risk assessment involves an assumption of the control's
operational efficacy, and when substantive procedures alone do not offer sufficient
relevant audit evidence, test if controls are in place.
7. Define external confirmation. Give examples of situations involving external confirmation.
- External confirmation is the process of receiving and analyzing audit evidence from a
third party via a representation of knowledge or an underlying condition in response
to a query for information on a specific issue influencing financial statement claims
or associated disclosures. Some examples would include, stocks held by third parties
at bonded warehouses for processing or on consignment, property title deeds held by
lawyers or financers for safe custody or for security and investments purchased from
stockbrokers but at delivered at the balance sheet date.
8. What are the different forms of confirmation request? What are the situations where each type
may be used?
There are two types of confirmation requests: the positive form and the negative form.
- Positive confirmation necessitates the verification of correctness by confirming that
the original data was valid or supplying the proper data if it was erroneous.
Liabilities, investments, bank accounts, accounts receivables, and payables are all
verified via positive confirmations.
- Negative confirmation letters are commonly employed in the financial services sector
and may be utilized in a variety of business settings. The communication's goal is to
limit the amount of replies a company receives in response to a letter addressed to its
client base. The organization or entity sending the message only receives replies from
"no" voters in a negative confirmation or negative consent communication situation,
rather than responses from everyone regardless of their viewpoint.
9. Explain the typical approach followed in performing analytical procedures.
Performing analytical procedure typically follows:
- Form an expectation, in this step, the auditor creates a forecast for an account balance
or a financial connection. Establishing an independent expectation allows the auditor
to evaluate stated quantities with professional skepticism. Expectations are generated
by the identification of linkages based on the auditor's knowledge of the firm and
industry.
- Identify differences between expected and reported amounts, the auditor must verify
his or her estimate to the amount documented in the accounting system of the firm.
The discrepancy is then contrasted to the auditor's analytical testing criteria. If the
discrepancy is smaller than the limit, the auditor will usually accept the recorded
amount without additional inspection, and the analytical procedure will be finished. If
 the difference exceeds the limit, the next step is to figure out what's causing the
problem.
- Investigate the reason, the auditor considers all potential explanations before deciding
on the most likely cause of the disparity. When the analytical test or the information
itself is difficult, the auditor must use more exact data and conduct extra analytical
methods. Other times, there is a plausible reason for the disparity, which is frequently
tied to exceptional transactions or events, as well as accounting or company changes.
- Evaluate differences, the auditor assesses the form and scope of any extra auditing
procedures after assessing the possibility of significant misstatement. Audit evidence
must be able to back up plausible interpretations.
10. Define substantive tests. What are the different types of substantive tests?
- Substantive testing is an auditing approach that examines a company's accounts,
financial statements, and supporting documentation for any mistakes or serious
misstatements.
- The three types of substantive test are the analytical procedures, a test of details of
transactions, and tests of details of balances.
11. Differentiate fraud from error.
- The intention is what distinguishes fraud from error. Simply described, fraud is a
premeditated act performed to benefit a certain individual or organization at the
expense of others, whereas errors are inadvertent mistakes or negligence.
12. What are the auditor's responsibilities regarding fraud? Regarding error?
- The auditor's duties in relation to fraud include identifying, assessing, and responding
to fraud risks with integrity and professional skepticism, as mandated by the
standards. During the audit planning process, the auditor should evaluate the risk of
substantial misrepresentation in the financial statements due to fraud and error and
inquire about every fraud or significant error that has been detected from the audited
entity's management.
13. What are accounting estimates? How are accounting estimates audited?
- An accounting estimate is a rough estimate of the amount of a business arrangement
that cannot be measured precisely. An accounting estimate's value is determined by
historical information and the accountant's assessment. In many cases, the auditor
evaluates the validity of an accounting estimate by putting the method employed by
management to produce the estimate to the test. Determine whether there are any
controls in place to ensure the accuracy of accounting estimates and supporting data.
14. What is audit documentation? What are the purposes of audit documentation?
- Audit documentation is written evidence of the foundation for the auditor's findings
that backs up the auditor's assertions, whether those assertions are mentioned in the
 auditor's report or not. Work papers or working papers are other terms for audit
documents.
The purposes of audit documentation are as follows:
- It establishes the auditors' grounds for reaching a decision regarding the overall
objective's success.
- It demonstrates that audit work was appropriately planned and carried out in line with
ISAs and other legal requirements.
- It aids audit team members in planning and carrying out their audit activities
throughout the engagement.
- It enables members of the audit team who oversee supervision to appropriately direct,
oversee, and assess audit activity, both hot and cold.
- It allows audit team members to take responsibility for their audit work.
- It provides for the preservation of records of ongoing importance.
- It enables quality assurance audits and inspections to be carried out both internal and
external.
15. Give examples of factors that affect the form and content of audit documentation.
The form, content and extent of audit documentation depend on factors such as:

- The size and complexity of the entity.

- The nature of the audit procedures to be performed.
- The identified risk of material misstatement, significant deficiency, or significant
finding.
- The significance of the audit evidence obtained.
- The nature and extent of exceptions identified; and
- The audit methodology and audit tools used.