3A - Evaluate Sufficiency of Audit Evidence

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University of Illinois, Chicago *

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435

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Accounting

Date

Nov 24, 2024

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docx

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Uploaded by JusticeCapybaraMaster1521

3A – Evaluate Sufficiency of Audit Evidence Audit Evidence Defined - All information used in arriving conclusions o Basis for audit opinion - Includes information contained in accounting records underlying the F/S and other information o NOT expected to examine all information that exists Sufficient Appropriate Evidence - Sufficient : Measured in quantity - Appropriate : Measured in quality o Relevant and reliable o Influenced by source and nature - The GREATER the risk, the MORE persuasive evidence o MORE assurance is obtained from consistent evidence from different sources of nature Cost-Benefit Considerations - MAY consider relationship between cost of obtaining the audit evidence and the usefulness of information obtained - A matter of difficult or expense involve is NOT in itself a valid basis for omitting and audit procedure when NO appropriate alternative procedure Evaluating Results of Procedures - Evaluate the continued appropriateness of initial assessments of risk of material misstatement o Evidence MAY cause a modification in nature, timing or extent of planned audit procedures - Should NOT assume that an instance of fraud or error is an isolated occurrence - Consider all evidence, regardless of whether it agrees or disagrees with assertions made by management Unable to Obtain Sufficient Appropriate Evidence - Should express a qualified opinion or disclaimer of opinion Required Documentation - Overall responses to address the assessed risk of material misstatement at the relevant assertion level - Nature, timing, and extent of further audit procedures o Linkage of procedures to risk assessment - Results of audit procedures - Conclusions reached o Basis for auditor’s report

Question #1 Which of the following documents the procedures that are applied and the conclusions reached in an audit engagement? a) Management representation letter b) Audit guide c) Auditor’s report d) Working papers Question #2 Which of the following types of audit evidence provides the least assurance of reliability? a) Receivable confirmations received from the client’s customers b) Pre-numbered receiving reports completed by the client’s employees c) Prior month’s bank statements obtained from the client d) Municipal property tax bills prepared in the client’s name Question #3 Which of the following types of audit evidence is the most persuasive? a) Prenumbered client purchase order forms b) Client work sheets supporting cost allocations c) Bank statements obtained from the client d) Client representation letter Question #4 Which of the following circumstances is most likely to cause an auditor to consider whether a material misstatement exists? a) Transactions selected for testing are NOT supported by proper documentation b) The turnover of senior accounting personnel is exceptionally low c) Management places little emphasis on meeting earnings projections d) Operations and financing decisions are dominated by several persons Question #5 Each of the following might, by itself, form a valid basis for an auditor to decide to omit a test EXCEPT for the: a) Difficulty and expense involved in testing a particular item b) Degree of reliance on relevant internal controls c) Relative risk involved d) Relationship between the cost of obtaining evidence and its usefulness Question #6 When a PCAOB auditing standard indicates that an auditor “could” perform a specific procedure, how SHOULD the auditor decide whether and how to perform the procedure? a) By comparing the PCAOB standard with related AICPA standards b) By exercising professional judgment in the circumstances c) By soliciting input from the issuer’s audit committee d) By evaluating whether the audit is likely to be subject to inspection by the PCAOB

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