Term
| primary purpose of collection of evidence |
|
Definition
| to test management's assertions related to the balance and disclosures reported on the F/S. |
|
|
Term
| sufficiency and appropriateness of evidence |
|
Definition
| judged by the auditor based on the acceptable level of detection risk. This judgment is based on the level to which the auditor wishes to restrict the RMM and the assessments of inherent and control risks. |
|
|
Term
| third standard of field work |
|
Definition
| The auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the F/S under audit. |
|
|
Term
|
Definition
| all information used by the auditor in arriving at the conclusion on which the audit opinion is based |
|
|
Term
|
Definition
accounting records
initial entries (manual or electronic)
supporting records: checks/EFTs, invoices, contracts, G/L and S/Ls, journal entries, worksheets, spreadsheets, and reconciliations., meeting minutes, confirmations, industry analyst reports, data about competitors, controls manuals, and information from persuasive audit evidence. |
|
|
Term
| Are difficulty and cost of obtaining evidence valid reasons for omitting tests? |
|
Definition
|
|
Term
|
Definition
| F/S implicitly or explicitly include management's assertions about the fair presentation of information- recognition, measurement, presentation, and disclosure. Most auditor work consists of obtaining and evaluating evidence about management's assertions. |
|
|
Term
|
Definition
quantity of evidence.
Greater RMM = greater required evidence.
Higher evidence quality = less required. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| relevance and reliability |
|
|
Term
| Evidence is more reliable when... |
|
Definition
Obtained from knowledgeable sources outside the entity
Generated under effective IC
Obtained directly by the auditor
Exists in documentary form.
Consists of original documents |
|
|
Term
| risk assessment procedures |
|
Definition
| used to obtain an understanding of the entity and its environment, including IC. Obtaining the understanding permits the auditor to assess the RMMs at the F/S and relevant assertion level. |
|
|
Term
|
Definition
| test operating effectiveness of controls in preventing or detecting material misstatements at the relevant assertion level. |
|
|
Term
| When are tests of controls required? |
|
Definition
When the auditor's risk assessment is based on an expectation of the operating effectiveness of controls.
When substantive procedures alone do not provide sufficient appropriate evidence. |
|
|
Term
|
Definition
are used to detect material misstatements at the relevant assertion levels. They include tests of detail of transaction classes, account balances, and disclosures, and substantive analytical procedures.
Should be performed for all relevant assertions about each material transaction class, account balance, and disclosure. |
|
|
Term
| inspection of records or documents |
|
Definition
| examination of records or documents |
|
|
Term
| inspection of tangible assets |
|
Definition
| physical examination of assets to test existence; accompanies observation of inventory counts |
|
|
Term
|
Definition
| looking at a process or procedures being performed |
|
|
Term
|
Definition
| seeking information from knowledgeable persons |
|
|
Term
|
Definition
| obtaining a representation about information or an existing condition directly from a 3rd party |
|
|
Term
|
Definition
| checking mathematical accuracy |
|
|
Term
|
Definition
| independent execution of procedures or controls |
|
|
Term
|
Definition
| evaluations of financial and nonfinancial data made by a study of plausible relationships among both types of data |
|
|
Term
|
Definition
| Some information may exist only in electronic form or only at a certain moment of time in e-commerce and with image processing systems, neither of which leave source documents |
|
|
Term
| auditor's responses to electronic env. |
|
Definition
Performing audit procedures using computer-assisted audit techniques (CAATs)
Requesting the entity to retain certain information
Performing audit procedures at the moment when information exists |
|
|
Term
|
Definition
| from shipping documents to sales account (where they should be recorded |
|
|
Term
| existence/occurrence tests |
|
Definition
| opposite direction (from journals to physical items) |
|
|
Term
|
Definition
Selecting items for confirmations
Designing the request
Communicating the request to the appropriate 3rd party
Obtaining the response
Evaluating the information, or lack of it, provided by 3rd party about the audit objectives, including its reliability |
|
|
Term
| How does the auditor use the audit risk assessment? |
|
Definition
| To determine the appropriate audit procedures, including confirmation. |
|
|
Term
|
Definition
| greater assurance needed from substantive procedures and the less likely confirmation is needed |
|
|
Term
| When is confirmation used? |
|
Definition
| If the entity has entered into an unusual confirmation and the assessed RMM is high, the auditor should consider confirming the terms of the transaction w/3rd parties in addition to examining documents. |
|
|
Term
|
Definition
Auditor should assess whether the evidence provide by confirmations reduces audit risk to an acceptably low level. The materiality of the account balance and the RMM should be considered. If the evidence provided by confirmations alone is not sufficient, additional procedures should be performed.
Even properly designed confirmation requests do not address all assertions w/equal effectiveness.
When obtaining evidence for assertions not adequately addressed by confirmations, the auditor should consider other audit procedures to complement or replace confirmation procedures. |
|
|
Term
| What assertion do confirmations address? |
|
Definition
Confirmation requests can be designed to provide evidence for the completeness assertion, but are not always. Their
effectiveness in this regard depends on whether the auditor selects items from an appropriate population. |
|
|
Term
| designing confirmation requests |
|
Definition
The auditor should exercise an appropriate level of professional skepticism throughout the confirmation process.
Requests should be specific to particular audit objectives.
Assertions addressed and the factors likely to affect the reliability of the confirmations should be considered. |
|
|
Term
| factors affecting the design directly related to reliability of the evidence obtained |
|
Definition
Form of the request
Prior experience on the audit or similar engagements
Nature of information being confirmed
Intended respondent |
|
|
Term
|
Definition
requests a reply regardless of whether the respondent agrees w/the information stated. It may ask the respondent to state whether s/he agrees w/information given or ask for other information, such as a blank form.
Provides evidence only when respondents respond. |
|
|
Term
|
Definition
| account balance; help verify the information provided. |
|
|
Term
|
Definition
| requests recipient to respond only if s/he disagrees w/information stated. |
|
|
Term
| When is a negative confirmation used? |
|
Definition
Used when assessed RMM is low, large number of small balances involved, and auditor has no reason to believe that the recipients are unlikely to consider them.
Returned negative confirmation requests provide evidence, while unreturned ones rarely provide significant evidence about assertions other than existence. |
|
|
Term
| consideration for designing audit requests |
|
Definition
When designing requests, the auditor should consider the types of information respondents will most likely confirm. Nature of the information may directly affect the reliability of evidence obtained and the response rate.
The auditor also should consider
Requesting confirmation of the terms of unusual agreements or transactions as well as the amounts
Ascertaining whether oral modifications were made to agreements. |
|
|
Term
| direct the confirmation request to a knowledgeable 3rd party |
|
Definition
| Information about the respondent's competence, knowledge, motivation, ability, willingness to respond, objectively, or freedom from bias may affect the design of the request and the evaluation of the results, including the determination as to whether other procedures are necessary. |
|
|
Term
| performing confirmation procedures |
|
Definition
| auditor should control confirmation requests and responses during the performance of procedures |
|
|
Term
|
Definition
| direct communication between the intended recipient and the auditor to minimize possible bias because of interception and alteration of the requests or responses. |
|
|
Term
| What happens when responses other than mailed written communications are received? |
|
Definition
| Additional evidence may be required to support their validity. |
|
|
Term
|
Definition
| should be documented in audit documentation; should be written if significant |
|
|
Term
| follow-up on positive confirmations |
|
Definition
| When using positive confirmations, the auditor should usually follow up with a second and, if applicable, a third request to parties who did not respond. |
|
|
Term
|
Definition
| When the auditor has not received replies to positive confirmation requests, s/he should apply alternative procedures to the nonresponses to reduce audit risk to an acceptably low level. |
|
|
Term
| Omission of alternative procedures may be warranted when... |
|
Definition
Auditor has not identified unusual qualitative factors or systematic characteristics related to the nonresponses
Given testing for overstatement, treating the aggregate nonresponses as 100% misstatements would not affect the auditor's decision about whether the F/S are materially misstated. |
|
|
Term
| nature of alternative procedures |
|
Definition
| varies w/account and assertion |
|
|
Term
| evaluation of evidence provided by confirmations and alternative procedures |
|
Definition
| Evaluation is done to determine whether sufficient appropriate evidence has been obtained about all the applicable F/S assertions. |
|
|
Term
| What if evidence provided by confirmations and alternative procedures is not sufficient and appropriate? |
|
Definition
| If the evidence gathered is not sufficient and appropriate, the auditor should request additional confirmation or extend other tests. |
|
|
Term
| accounts receivable (A/R) |
|
Definition
are the entity's claims against customers arising from the sale of goods or services in the normal course of business.
They include the loans of a financial institution. |
|
|
Term
| Is confirmation of A/R a GAAS? |
|
Definition
|
|
Term
| When is confirmation of A/R not needed? |
|
Definition
They are immaterial;
Confirmation would be ineffective; or
Assessed RMM is low, and that level, together with the evidence expected to be obtained from other tests of details or substantive analytical procedures is sufficient to reduce audit risk to an acceptably low level.
Auditor must document why A/R were not confirmed. |
|
|
Term
| audit documentation/working papers |
|
Definition
must be prepared to provide a clear understanding of the work performed, audit evidence obtained and its source, and the conclusions reached.
Working papers provide principal support for the representation that the audit is in accordance with GAAS and the opinion expressed.
The auditor should document who performed the audit work and the date such work was complete and who reviewed specific audit documentation and the date of such review. |
|
|
Term
| working papers serve other purposes, including... |
|
Definition
Assisting the audit team to plan and perform the audit
Assisting new auditors to understand the work performed
Assisting audit supervisors
Demonstrating the accountability of the audit team
Retaining a record of matters of continuing significance to future audits
Assisting inspectors, peer reviewers, and quality control reviewers.
Assisting a successor auditor |
|
|
Term
| documentation should allow auditors to... |
|
Definition
Procedures performed under GAAS or other requirements
Results and evidence obtained
Significant conclusions
That the accounting records agree with the audited information |
|
|
Term
| form, content, and extent of documentation determined by... |
|
Definition
RMM of an assertion related to a transaction class, account, or disclosure.
Extent of judgment involved in performing the work and evaluating the results.
Nature of the auditing procedures.
Significance of the evidence obtained.
Nature and extent of the exceptions identified.
Need to document a conclusion or the basis for a conclusion not readily determinable from other audit documentation. |
|
|
Term
|
Definition
| used to document work performed and issues uncovered during the field work. A legend should define the tickmarks. |
|
|
Term
|
Definition
| identifies its use and location; for each page. These are also used to cross-reference information on other working papers. |
|
|
Term
| components of working papers |
|
Definition
| audit plans, analyses, memoranda, confirmations, letters of representation, abstracts or copies of documents, schedules, and commentaries. Documentation may be on paper or electronic or other media. |
|
|
Term
|
Definition
| used to record used to record the year-end ledger balances prior to audit. Reclassifications and adjustments are accumulated on the trial balance to reflect the final audited balances. |
|
|
Term
|
Definition
| summaries of detailed schedules |
|
|
Term
|
Definition
| schedules, documents, and records with continuing significance for a specific client. Articles, bylaws, and contracts. |
|
|
Term
|
Definition
| schedules and analyses that related to the current year under audit. |
|
|
Term
| significant audit findings or issues to be documented include: |
|
Definition
Identification of items tested to determine the operating effectiveness of controls or to perform tests of details that consist of inspection of documents or confirmations. Source and specific selection criteria should be stated.
Evidence that the F/S or disclosures may be materially misstated.
Evidence of a need to revise the assessments of RMMs and the responses to them.
Difficulty in applying necessary auditing procedures
Other findings that could result in modification of the report
Audit adjustments |
|
|
Term
| auditor should complete the assembly of the final audit file... |
|
Definition
within 60 days following the report release/documentation completion date.
Do not discard documentation after release date.
Can add to it, but must document who, when, and why. |
|
|
Term
| ownership and confidentiality |
|
Definition
Working papers belong to the auditor.
Copies of documentation may be made available to the client if the validity and independence of the audit are not undermined.
Keep audit documentation at least 5 years past audit date.
Auditor should take reasonable steps to preserve the confidentiality of documented client information, including prevention of unauthorized access. |
|
|
Term
|
Definition
| Audit documentation must contain sufficient information to enable an experienced auditor, having no previous connection with the engagement, to understand the work performed and conclusions reached and to determine who performed and reviewed the work and the relevant dates. |
|
|
Term
| PCAOB AS 3 Additional Information |
|
Definition
The auditor must identify all significant findings or issues in an engagement completion document.
Audit documentation must be retained for 7+ years from report release date.
A complete and final set of audit documentation should be assembled for retention as of document completion date not more than 45 days after report release date.
Don't discard documentation, but can add it.
AS 3 silent on audit documentation ownership and confidentiality. |
|
|
Term
|
Definition
| uses of software by the auditor; Many auditors use PCs to perform audit functions more efficiently and effectively. For this purpose, auditors must select tasks appropriate for PC capabilities and software for these tasks. |
|
|
Term
|
Definition
Auditor can work independently of auditee.
Confidentiality of audit procedures.
Audit work does not depend on availability of personnel.
Auditor has access to records at remote sites. |
|
|
Term
|
Definition
Auditor must have a working understanding of the computer system.
Supervisory review may be more difficult. |
|
|
Term
|
Definition
| directly accessing the entity's database |
|
|
Term
|
Definition
| searching for certain types of records, items, etc. |
|
|
Term
|
Definition
|
|
Term
|
Definition
| using input/output routines to provide hard copy and reformat data |
|
|
Term
| Other CAAT audit procedures |
|
Definition
Applying statistical sampling item selection and analysis routines.
Preparing F/S and other reports with spreadsheet routines
Illustrating analyses w/graphs/pictorial displays
Writing customized audit plans
Storing audit plans, routines, and results electronically
Implementing other types of audit procedures and analyses electronically
Preparing and storing audit documentation
Communicating data through networks |
|
|
Term
specialized audit software is used for...
(CAAT) |
|
Definition
| comparing source code with object code to detect unauthorized program changes, analyze unexecuted code, or generate test data. |
|
|
Term
embedding code in the entity's programs is used for...
(CAAT) |
|
Definition
| to routinely extract/select certain transactions or details to be recorded in a file accessible only by the auditor. |
|
|
Term
expert systems software is used for...
(CAAT) |
|
Definition
| to automate the knowledge and logic of experts in certain to help an auditor w/decision making and risk analysis |
|
|
Term
| generalized audit software (GAS) |
|
Definition
| software that is written to interface with many different client systems; useful for both tests of controls and substantive procedures |
|
|
Term
| GAS may be used to perform... |
|
Definition
Sampling and selecting items
Testing extensions, footings, and calculations
Examining records
Summarizing and sorting data
Performing analytical procedures
File access and reorganization |
|
|
Term
|
Definition
Independent of the client's programs and personnel.
Less computer expertise is needed compared w/writing original programs.
It can run on a variety of systems. |
|
|
Term
|
Definition
Some software packages may process only sequential files.
Modifications may be necessary for a specific audit.
Audit software cannot examine items not in machine-readable form.
It has limited in an online, real-time system. |
|
|
Term
|
Definition
ACL and IDEA
Audit Command Language (ACL) snd Interactive Data Extraction and Analysis (IDEA) software. |
|
|
Term
| major functions performed by leading GAS softwares (ACL and IDEA) |
|
Definition
Aging of A/R
Duplicate identification.
Exploration.
Gap identification.
Joining and merging.
Sampling.
Sorting.
Stratification.
Summarization.
Total fields. |
|
|
Term
| artificial intelligence (AI) |
|
Definition
| computer software designed to perceive, reason, and understand |
|
|
Term
|
Definition
business applications of AI. Expert systems are interactive.
Expert systems allow auditors and accountants to perform their duties in less time and with more uniformity. |
|
|
Term
| What can an expert system be used for? |
|
Definition
| to choose an audit plan, select a test sample type and size, determine the level of misstatement, perform analytical procedures, and make a judgment based on the findings. |
|
|
Term
|
Definition
| to choose an audit plan, select a test sample type and size, determine the level of misstatement, perform analytical procedures, and make a judgment based on the findings. |
|
|
Term
| expert systems vs. neural networks |
|
Definition
| An expert system initiates a human expert and relies on many programmed rules, but a neural network has a generalized learning capacity. |
|
|
Term
| specialized audit software |
|
Definition
| written to fulfill a specific set of audit tasks. Purposes and users of the software are well-defined before the software is written. |
|
|
Term
| Why was specialized audit software developed? |
|
Definition
Unavailability of alternative software
Functional limitations of alternative software
Efficiency considerations
Increased understanding of systems
Opportunity for easy implementation
Increased auditor independence and prestige |
|
|
