MODERN AUDITING

7th Edition
William C. Boynton
California Polytechnic State
University at San Luis Obispo

Raymond N. Johnson
Portland State University

Walter G. Kell
University of Michigan
Developed by:
Gregory K. Lowry, MBA,
CPA John Wiley & Sons, Inc.
Saint Paul’s College
 CHAPTER 6
AUDIT EVIDENCE, AUDIT OBJECTIVES,
AUDIT PROGRAMS, AND WORKING PAPERS

 Top-Down vs. Bottom-Up Audits

 Important Decisions About Audit Evidence
 Specific Audit Objectives and Audit
Evidence
 Audit Evidence, Corroborating Information,
and Audit Procedures
 Electronic Data Processing and Audit
Procedures
 Audit Programs
 Working Papers
 Top-Down Versus
Bottom-Up Audits
Top-down audit evidence focuses the
auditor’s attention on obtaining an
understanding of:
1. the business and industry,
2. management’s goals and objectives,
3. how management uses its resources to
attain those goals,
4. the organization’s competitive advantage
in the marketplace,
5. core business processes, and
6. the earnings and cash flow that result.
 Top-Down Versus
Bottom-Up Audits
Bottom-up audit evidence focuses on directly
testing:
1. transactions,
2. account balances, and
3. the systems that record the transactions
and resulting account balances.
Top-Down vs. Bottom-Up Audit Procedures
Figure 6-1
 Important Decision About
Audit Evidence
When planning the audit, the auditor
must make 4 important decisions
about scope and conduct of the audit.
These include:
1. The nature of tests to be performed
2. The timing of tests to be performed
3. The extent of tests to be performed
4. The assignment of staff to perform
audit tests
Developing Specific Audit Objectives from
Management’s Assertions
Figure 6-2
Assertion Transaction Class Specific
Category or Balance Audit Objective

Existence or occurrence Transactions All sales (EO1), cash receipts

(EO2), and sales adjustment (EO3)
transactions that have been
recorded occurred during the
period.
Balance EO4. Accounts receivable
represent valid amounts owed by
customers at the balance sheet
date.
Developing Specific Audit Objectives from
Management’s Assertions
Figure 6-2
Developing Specific Audit Objectives from
Management’s Assertions
Figure 6-2
Categories and Types of Evidential Matter
Figure 6-3
Effects of Circulation on
Reliability of Documentary Evidence
Figure 6-5
 Audit Procedures
10 types of audit procedures:
1. Analytical procedures
2. Inspecting
3. Confirming
4. Inquiring
5. Counting
6. Tracing
7. Vouching
8. Observing
9. Reperforming
10. Computer-assisted audit techniques
Directional Testing —
Vouching and Tracing
Figure 6-6
 Computer-Assisted
Audit Techniques
The auditor can use computer audit software to do the
following:
1. Perform the calculations and comparisons used in
analytical procedures.
2. Select a sample of accounts receivable for confirmation.
3. Scan a file to determine that all documents in a series
have been accounted for.
4. Compare data elements in different files for agreement.
5. Submit test data to the client’s programs to determine
that computer aspects of internal controls are functioning.
6. Reperform a variety of calculations such as totaling the
accounts receivable subsidiary ledger or inventory file.
 Electronic Data Processing
and Audit Procedures
1. Effect on Material Account
Balance and Transaction Classes
2. Effect on Nature of Audit Tests
3. Effect on Timing of Audit Tests
4. Effect on Extent of Audit Tests
5. Effect on Audit Staffing
Key Elements of an Audit Program
Figure 6-8
 Working Papers
SAS 41 describes working papers as the
records kept by the auditor of:
1. the procedures applied,
2. the tests performed,
3. the information obtained, and
4. the pertinent conclusions reached in
the audit.
 Working Papers
Working papers provide:
1. The principal support for the auditor’s
report.
2. A means for coordinating and
supervising the audit.
3. Evidence that the audit was made in
accordance with GAAS.
Integrated Working Papers for Cash
Figure 6-11
 Preparing Working Papers
The following essential techniques of good working
paper preparation should always be observed:
1. Heading Each working paper should contain the
name of the client, a descriptive title identifying
the content of the working paper, and the balance
sheet date or the period covered by the audit.
2. Index number Each working paper is give an
index or reference number, for identification and
filing purposes.
3. Cross-referencing Data on a working paper that is
taken from another working paper or that is
carried forward to another working paper should
be cross-referenced with the index numbers of
those working papers.
 Preparing Working Papers
4. Tick marks Tick marks are symbols that are used
on working papers to indicate that the auditor has
performed some procedure on the item to which
the tick mark is affixed, or that additional
information about the item is available elsewhere
on the working paper.
5. Signatures and dates Upon completing their
respective tasks, both the preparer and reviewer
of a working paper should initial and date it.
 CHAPTER 6
AUDIT EVIDENCE, AUDIT OBJECTIVES,
AUDIT PROGRAMS, AND WORKING PAPERS
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