Module 4 - Audit Evidences

What are the key assertions in financial statements?

• Existence, Completeness, Valuation, Rights and Obligations, Presentation and Disclosure.

• Forecasting, Budgeting, Planning

• Accuracy, Relevance, Consistency

• Liquidity, Profitability, Solvency

Describe the audit procedures used to obtain audit evidence.

• Audit procedures include planning, risk assessment, tests of controls, substantive tests, and gathering evidence through inquiries, observations, inspections, and confirmations.

• Relying solely on financial statements for evidence

• Only conducting interviews with management

• Performing audits without a risk assessment

How do you assess the quality and quantity of audit evidence?

• Quality is determined by the number of documents reviewed.

• Quality is assessed by relevance, reliability, and sufficiency; quantity is assessed by the adequacy of evidence collected.

• Quantity is irrelevant to the audit process.

• Quality is only assessed by the auditor's opinion.

What are common problems associated with auditing accounting estimates?

• Overreliance on historical data

• Complete accuracy in estimates

• Common problems associated with auditing accounting estimates include subjectivity, insufficient data, management bias, and challenges in evaluating estimation models.

• Standardized procedures for all estimates

How does the control environment differ in smaller entities?

• Smaller entities typically have extensive segregation of duties and formalized processes.

• Larger entities have a more relaxed control environment compared to smaller ones.

• The control environment in smaller entities is highly structured with strict policies.

• The control environment in smaller entities is less formalized, with more direct influence from leadership and limited segregation of duties.

Define audit sampling and explain its necessity.

• Audit sampling is the process of selecting a subset of items from a larger population to evaluate and draw conclusions about the entire population.

• Audit sampling is the process of reviewing all items in a population without selection.

• Audit sampling is only necessary for financial audits and not for compliance audits.

• Audit sampling involves selecting items based on personal preference rather than statistical methods.

What is the difference between statistical and non-statistical sampling?

• Statistical sampling is random and allows for inference; non-statistical sampling is subjective and may introduce bias.

• Statistical sampling is always more accurate than non-statistical sampling.

• Statistical sampling does not require a sample size to be determined.

• Non-statistical sampling is based on random selection and is unbiased.

Provide an example of statistical sampling in an audit context.

• Reviewing all 10,000 invoices without any sampling method.

• An example of statistical sampling in an audit context is selecting 100 invoices from a population of 10,000 invoices to test for accuracy.

• Choosing every fifth invoice from a list of 1,000 invoices to check for compliance.

• Selecting 50 random employees to assess their performance metrics.

What are the audit considerations for receivables?

• Cash flow forecasting techniques

• Revenue recognition policies

• Inventory management procedures

• Existence, valuation, allowance for doubtful accounts, aging analysis, cut-off procedures, internal controls, fraud risk.

How should inventories be audited?

• Inventories should be audited solely based on historical data.

• Auditing inventories requires only digital record checks.

• Inventories should be audited through physical verification, valuation assessment, record accuracy checks, obsolescence testing, and compliance review.

• Physical verification is not necessary for inventory audits.