Auditing: Timeliness of Audit Evidence

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Questions and Answers

Match the following types of confirmations with their characteristics:

Positive confirmation with information = Recipient signs and returns the confirmation without examining the information Positive confirmation without information = Recipient signs and returns the confirmation after examining the information Negative confirmation = Recipient only responds if there are discrepancies in the information Blank confirmation = Not mentioned in the passage

Match the following purposes of analytical procedures with their descriptions:

To understand the client's industry and business = Analyzing recent trends in the client's gross margin percentages To aid in the assessment of the client's ability to continue as a going concern = Analyzing several key ratios including the ratio of long-term debt to net worth To indicate the presence of possible misstatements in the financial statements = Comparing the current year's un-audited account balances with the previous year's audited balances To evaluate the effectiveness of internal controls = Not mentioned in the passage

Match the following audit procedures with their descriptions:

Analytical procedures = Audit procedures done at the beginning of the audit process to assure the fair presentation of financial statements Substantive procedures = Not mentioned in the passage Compliance procedures = Not mentioned in the passage Risk assessment procedures = Not mentioned in the passage

Match the following documentation types with their descriptions:

Confirmation = A response from the third party that confirms the existence or amount of an asset or liability Audit program = A detailed plan outlining the procedures to be performed during the audit Working papers = Documents that contain evidence and support the auditor's conclusions Management representation letter = Not mentioned in the passage Signup and view all the answers

Match the following sampling methods with their descriptions:

Attribute sampling = Not mentioned in the passage Variable sampling = Not mentioned in the passage Stop-or-go sampling = Not mentioned in the passage No sampling method is mentioned in the passage = True Signup and view all the answers

Match the following audit scheduling with their descriptions:

Audit planning = The auditor's firm receives the positive confirmation directly Fieldwork = Not mentioned in the passage Audit reporting = Not mentioned in the passage Audit follow-up = Not mentioned in the passage Signup and view all the answers

Match the following evidence evaluation with their descriptions:

Sufficient appropriate evidence = Not mentioned in the passage Relevant evidence = Not mentioned in the passage Reliable evidence = Confirmed information from a third party No evidence evaluation is mentioned in the passage = True Signup and view all the answers

Match the following audit procedures with their purposes:

Analytical procedures = To assure the fair presentation of financial statements Substantive procedures = Not mentioned in the passage Compliance procedures = Not mentioned in the passage Risk assessment procedures = Not mentioned in the passage Signup and view all the answers

Match the following types of confirmations with their reliabilities:

Positive confirmation with information = Less reliable than positive confirmation without information Positive confirmation without information = More reliable than positive confirmation with information Negative confirmation = The least reliable type of confirmation Blank confirmation = Not mentioned in the passage Signup and view all the answers

Match the following purposes of analytical procedures with their examples:

To understand the client's industry and business = Analyzing recent trends in the client's gross margin percentages To aid in the assessment of the client's ability to continue as a going concern = Analyzing several key ratios including the ratio of long-term debt to net worth To indicate the presence of possible misstatements in the financial statements = Comparing the current year's un-audited account balances with the previous year's audited balances To evaluate the effectiveness of internal controls = Not mentioned in the passage Signup and view all the answers

Match the following documentation types with their purposes:

Confirmation = To obtain evidence from a third party Audit program = A detailed plan outlining the procedures to be performed during the audit Working papers = To document evidence and support the auditor's conclusions Management representation letter = Not mentioned in the passage Signup and view all the answers

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Study Notes

Factors Affecting Reliability of Audit Evidence

Timeliness of audit evidence is critical, especially for balance sheet accounts, where evidence obtained close to the balance sheet date is more reliable.
Independence of the evidence provider, effectiveness of internal controls, and auditor's direct knowledge also impact reliability.
Objectivity of evidence, such as count of cash on hand by the auditor, contributes to reliability.
Confirmation of a bank balance, observing inventory on the last day of the fiscal year, and qualifications of the evidence provider (e.g., an attorney) also impact reliability.

Audit Evidence Decisions

The auditor must decide which audit procedures to use, based on the evaluation of audit evidence.
The auditor must determine the sample size for a given procedure and select the items to test from the population.

Purposes of Audit Documentation

To provide a basis for planning the audit, using reference information from the previous year.
To provide a record of the evidence accumulated and the results of the tests.
To provide data for deciding the proper type of audit report.
To provide a basis for review by supervisors and partners.
To demonstrate that the auditor has accumulated sufficient appropriate evidence.

Limitations of Audit Assurance

The auditor can only provide a reasonable level of assurance due to the cost of accumulating evidence and the impossibility of being completely convinced.

Confirmation

Positive confirmation with the information to be confirmed included on the form is less reliable than the first type of positive confirmation.
Negative confirmation is the least reliable method, as a non-response could be due to either agreement or ignorance.

Purposes of Analytical Procedures

To help the auditor understand the client's industry and business, e.g., analyzing trends in gross margin percentages.
To aid in the assessment of the client's ability to continue as a going concern, e.g., analyzing key ratios like debt to net worth and profits to total assets.
To indicate the presence of possible misstatements in the financial statements, e.g., comparing current year's un-audited balances with previous year's audited balances.