AUDITING THEORY
AT.106.2_Audit Evidence Gathering & Documentation
LECTURE NOTES
Audit Evidence
Audit evidence is all information used by the auditor on
which the audit opinion is based. The gathering and
evaluation of audit evidence is a cumulative and iterative
process.
The two types of audit evidence obtained by the auditor
are the following:
• Underlying accounting records - The records of initial
accounting entries and supporting records, such as
checks and records of electronic fund transfers;
invoices; contracts; the general and subsidiary ledgers,
journal entries and other adjustments to the financial
statements that are not reflected in journal entries;
and records such as work sheets and spreadsheets
supporting cost allocations, computations,
reconciliations and disclosures.
• Other information – All other evidence obtained by the
auditor such as minutes of meetings, confirmation
from third parties and information obtained from such
audit procedures as inquiry, observation, and
inspection.
The auditor must obtain the two types of audit evidence
above, which must be consistent with each other and not
doubtful as to its reliability. Underlying accounting records
alone cannot constitute sufficient audit evidence.
Sources of Audit Evidence
The following are the list of sources of audit evidence:
• Audit procedures performed during the course of the
audit. (Primary source)
• Previous audits.
• Firm’s quality control procedures for client acceptance
and continuance
• Work of a management’s expert.
• Management representations.
• Other sources inside and outside the entity, the
entity’s accounting records are an important source of
audit evidence.
Audit Procedures
Audit evidence to draw reasonable conclusions on which to
base the auditor’s opinion is obtained by performing:
• Risk assessment procedures (RAP); and
• Further audit procedures (FAP) which comprise:
o Tests of controls, when required by the PSAs
or when the auditor has chosen to do so; and
o Substantive procedures, including tests of
details and substantive analytical procedures.
Most of the auditor’s work in forming the auditor’s opinion
consists of obtaining and evaluating audit evidence. Audit
procedures to obtain audit evidence can include:
• Inspection - involves examining records or documents,
whether internal or external, in paper form, electronic
form, or other media, or a physical examination of an
asset.
• Observation - consists of looking at a process or
procedure being performed by others, for example, the
auditor’s observation of inventory counting by the
entity’s personnel, or of the performance of control
activities.
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Integrated Review
• External Confirmation - a direct written response to
the auditor from a third party (the confirming party),
in paper form, or by electronic or other medium.
• Recalculation - consists of checking the mathematical
accuracy of documents or records.
• Reperformance - involves the auditor’s independent
execution of procedures or controls that were originally
performed as part of the entity’s internal control.
• Analytical Procedures - consist of evaluations of
financial information made by a study of plausible
relationships among both financial and non-financial
data. Analytical procedures also encompass the
investigation of identified fluctuations and relationships
that are inconsistent with other relevant information or
deviate significantly from predicted amounts.
• Inquiry - consists of seeking information of
knowledgeable persons, both financial and
nonfinancial, within the entity or outside the entity.
Inquiry is the most extensively used audit procedures.
Although inquiry may provide important audit evidence,
and may even produce evidence of a misstatement, inquiry
alone ordinarily does not provide sufficient audit evidence
of the absence of a material misstatement at the assertion
level, nor of the operating effectiveness of controls.
Objective of the auditor in obtaining audit evidence
The auditor shall design and perform audit procedures to
enable the auditor to obtain sufficient appropriate audit
evidence (SAAE) to be able to draw reasonable conclusions
on which to base the auditor’s opinion.
Sufficiency is the measure of the quantity of evidence.
Appropriateness is the measure of the quality of evidence;
that is, its relevance and its reliability.
The sufficiency and appropriateness of audit evidence are
interrelated. Sufficiency is the measure of the quantity of
audit evidence. The quantity of audit evidence needed is
affected by the auditor’s assessment of the risks of
misstatement (the higher the assessed risks, the more
audit evidence is likely to be required) and also by the
quality of such audit evidence (the higher the quality, the
less may be required). Obtaining more audit evidence,
however, may not compensate for its poor quality.
Appropriateness is the measure of the quality of audit
evidence; that is, its relevance and its reliability in
providing support for the conclusions on which the
auditor’s opinion is based. The reliability of evidence is
influenced by its source and by its nature, and is
dependent on the individual circumstances under which it
is obtained.
Information to Be Used as Audit Evidence
When designing and performing audit procedures, the
auditor shall consider the relevance and reliability of the
information to be used as audit evidence. The quality of all
audit evidence is affected by the relevance and reliability
of the information upon which it is based.
Relevance
Relevance deals with the logical connection with, or
bearing upon, the purpose of the audit procedure and,
where appropriate, the assertion under consideration.
AT.106.2
The relevance of information to be used as audit evidence
may be affected by the direction of testing. For example, if
the purpose of an audit procedure is to test for
overstatement in the existence or valuation of accounts
payable, testing the recorded accounts payable may be a
relevant audit procedure. On the other hand, when testing
for understatement in the existence or valuation of
accounts payable, testing the recorded accounts payable
would not be relevant, but testing such information as
subsequent disbursements, unpaid invoices, suppliers’
statements, and unmatched receiving reports may be
relevant.
A given set of audit procedures may provide audit evidence
that is relevant to certain assertions, but not others. For
example, inspection of documents related to the collection
of receivables after the period end may provide audit
evidence regarding existence and valuation, but not
necessarily cutoff.
Reliability
The reliability of information to be used as audit evidence,
and therefore of the audit evidence itself, is influenced by
its source and its nature, and the circumstances under
which it is obtained, including the controls over its
preparation and maintenance where relevant.
Evidence is general more reliable when:
a. Obtained from independent sources;
b. The related controls are effective;
c. Obtained directly than indirectly or by inference;
d. In documentary form than oral; and
e. In original state than by photocopies or facsimiles.
Using the Work of a Management’s Expert
The preparation of an entity’s financial statements may
require expertise in a field other than accounting or
auditing, such as actuarial calculations, valuations, or
engineering data. The entity may employ or engage
experts in these fields to obtain the needed expertise to
prepare the financial statements. Failure to do so when
such expertise is necessary increases the risks of material
misstatement.
When information to be used as audit evidence has been
prepared using the work of a management’s expert, the
auditor shall, to the extent necessary, having regard to the
significance of that expert’s work for the auditor’s
purposes:
a. Evaluate the competence, capabilities and objectivity
of that expert;
b. Obtain an understanding of the work of that expert;
and
c. Evaluate the appropriateness of that expert’s work as
audit evidence for the relevant assertion.
The Competence, Capabilities and Objectivity of a
Management’s Expert
Competence relates to the nature and level of expertise of
the management’s expert.
Capability relates the ability of the management’s expert
to exercise that competence in the circumstances. Factors
that influence capability may include, for example,
geographic location, and the availability of time and
resources.
Objectivity relates to the possible effects that bias, conflict
of interest or the influence of others may have on the
professional or business judgment of the management’s
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expert. The competence, capabilities and objectivity of a
management’s expert, and any controls within the entity
over that expert’s work, are important factors in relation to
the reliability of any information produced by a
management’s expert.
Information regarding the competence, capabilities and
objectivity of a management’s expert may come from a
variety of sources, such as:
• Personal experience with previous work of that expert.
• Discussions with that expert.
• Discussions with others who are familiar with that
expert’s work.
• Knowledge of that expert’s qualifications, membership
of a professional body or industry association, license
to practice, or other forms of external recognition.
• Published papers or books written by that expert.
• An auditor’s expert, if any, who assists the auditor in
obtaining sufficient appropriate audit evidence with
respect to information produced by the management’s
expert.
Obtaining an Understanding of the Work of the
Management’s Expert
An understanding of the work of the management’s expert
includes an understanding of the relevant field of
expertise. An understanding of the relevant field of
expertise may be obtained in conjunction with the auditor’s
determination of whether the auditor has the expertise to
evaluate the work of the management’s expert, or whether
the auditor needs an auditor’s expert for this purpose.
In the case of a management’s expert engaged by the
entity, there will ordinarily be an engagement letter or
other written form of agreement between the entity and
that expert.
In the case of a management’s expert employed by the
entity, it is less likely there will be a written agreement of
this kind. Inquiry of the expert and other members of
management may be the most appropriate way for the
auditor to obtain the necessary understanding.
Evaluating the Appropriateness of the Management’s
Expert’s Work
Considerations when evaluating the appropriateness of the
management’s expert’s work as audit evidence for the
relevant assertion may include:
• The relevance and reasonableness of that expert’s
findings or conclusions, their consistency with other
audit evidence, and whether they have been
appropriately reflected in the financial statements;
• If that expert’s work involves use of significant
assumptions and methods, the relevance and
reasonableness of those assumptions and methods;
and
• If that expert’s work involves significant use of source
data the relevance, completeness, and accuracy of that
source data.
Using Information Produced by the Entity
In order for the auditor to obtain reliable audit evidence,
information produced by the entity that is used for
performing audit procedures needs to be sufficiently
complete and accurate.
When using information produced by the entity, the
auditor shall evaluate whether the information is
sufficiently reliable for the auditor’s purposes, including as
necessary in the circumstances:
AT.106.2
a. Obtaining audit evidence about the accuracy and
completeness of the information; and
b. Evaluating whether the information is sufficiently
precise and detailed for the auditor’s purposes.
For example, the effectiveness of auditing revenue by
applying standard prices to records of sales volume is
affected by the accuracy of the price information and the
completeness and accuracy of the sales volume data.
Similarly, if the auditor intends to test a population (for
example, payments) for a certain characteristic (for
example, authorization), the results of the test will be less
reliable if the population from which items are selected for
testing is not complete.
Obtaining audit evidence about the accuracy and
completeness of such information may be performed
concurrently with the actual audit procedure applied to the
information when obtaining such audit evidence is an
integral part of the audit procedure itself. In other
situations, the auditor may have obtained audit evidence
of the accuracy and completeness of such information by
testing controls over the preparation and maintenance of
the information. In some situations, however, the auditor
may determine that additional audit procedures are
needed.
Selecting Items for Testing to Obtain Audit Evidence
An effective test provides appropriate audit evidence to an
extent that, taken with other audit evidence obtained or to
be obtained, will be sufficient for the auditor’s purposes.
In selecting items for testing, the auditor determines the
relevance and reliability of information to be used as audit
evidence; the other aspect of effectiveness (sufficiency) is
an important consideration in selecting items to test. The
means available to the auditor for selecting items for
testing are:
• All items (100% examination)
• Specific items
• Audit sampling
The application of any one or combination of these means
may be appropriate depending on the particular
circumstances, for example, the risks of material
misstatement related to the assertion being tested, and
the practicality and efficiency of the different means.
Selecting All Items
The auditor may decide that it will be most appropriate to
examine the entire population of items that make up a
class of transactions or account balance (or a stratum
within that population). 100% examination is unlikely in
the case of tests of controls; however, it is more common
for tests of details. 100% examination may be appropriate
when, for example:
• The population constitutes a small number of large
value items;
• There is a significant risk and other means do not
provide sufficient appropriate audit evidence; or
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• The repetitive nature of a calculation or other process
performed automatically by an information system
makes a 100% examination cost effective.
Selecting Specific Items
The auditor may decide to select specific items from a
population. In making this decision, factors that may be
relevant include the auditor’s understanding of the entity,
the assessed risks of material misstatement, and the
characteristics of the population being tested. The
judgmental selection of specific items is subject to non-
sampling risk. Specific items selected may include:
• High value or key items. The auditor may decide to
select specific items within a population because they
are of high value, or exhibit some other characteristic,
for example, items that are suspicious, unusual,
particularly risk-prone or that have a history of error.
• All items over a certain amount. The auditor may
decide to examine items whose recorded values
exceed a certain amount so as to verify a large
proportion of the total amount of a class of
transactions or account balance.
• Items to obtain information. The auditor may examine
items to obtain information about matters such as the
nature of the entity or the nature of transactions.
While selective examination of specific items from a class
of transactions or account balance will often be an efficient
means of obtaining audit evidence, it does not constitute
audit sampling. The results of audit procedures applied to
items selected in this way cannot be projected to the
entire population; accordingly, selective examination of
specific items does not provide audit evidence concerning
the remainder of the population.
Audit Sampling
Audit sampling is designed to enable conclusions to be
drawn about an entire population on the basis of testing a
sample drawn from it. Audit sampling is discussed
separately.
Inconsistency in, or Doubts over Reliability of, Audit
Evidence
Obtaining audit evidence from different sources or of a
different nature may indicate that an individual item of
audit evidence is not reliable, such as when audit evidence
obtained from one source is inconsistent with that obtained
from another. This may be the case when, for example,
responses to inquiries of management, internal audit, and
others are inconsistent, or when responses to inquiries of
those charged with governance made to corroborate the
responses to inquiries of management are inconsistent
with the response by management.
Specific documentation requirement if the auditor
identified information that is inconsistent with the auditor’s
final conclusion regarding a significant matter.
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AT.106.2
 MULTIPLE CHOICE
1. The principal reason for an independent auditor to
gather and evaluate audit evidence is to
a. Form an opinion on the financial statements.
b. Detect fraud.
c. Evaluate management.
d. Evaluate internal control.
2. Which statement is incorrect regarding audit evidence?
a. Audit evidence is all the information used by the
auditor in arriving at the conclusions on which the
audit opinion is based.
b. Audit evidence includes the information contained
in the accounting records underlying the financial
statements and other information.
c. Audit evidence is cumulative in nature.
d. Auditors are expected to address all information
that may exist.
3. Accounting records least likely include
a. The records of initial entries and supporting
records.
b. The general and subsidiary ledgers.
c. Work sheets and spreadsheets supporting cost
allocations.
d. Comparable data about competitors
(benchmarking).
4. Other information that the auditor may use as audit
evidence least likely includes
a. Minutes of meetings.
b. Confirmation from third parties.
c. Information obtained by the auditor from such
audit procedures as inquiry, observation, and
inspection.
d. Adjustments to the financial statements that are
not reflected in formal journal entries.
5. Which statement is correct regarding the sufficiency
and appropriateness of audit evidence?
a. Sufficiency is the measure of the quality of audit
service.
b. Appropriateness is the measure of the quantity of
audit evidence; that is, its relevance and its
reliability in providing support for or, detecting
misstatements in, the classes of transactions,
account balances, and disclosures and related
assertions.
c. The quantity of audit evidence needed is affected
by the risk of misstatement (the greater the risk,
the more audit evidence is likely to be required)
and also by the quality of such audit evidence (the
higher the quality, the less may be required).
d. Merely obtaining more audit evidence may
compensate for its poor quality.
6. Which of the following statements concerning evidence
is correct?
a. Appropriate evidence supporting management’s
assertions should be convincing rather than merely
persuasive.
b. An effective internal control structure contributes
little to the reliability of the evidence created
within the entity
c. The cost of obtaining evidence is not an important
consideration to an auditor in deciding what
evidence should be obtained.
d. A client’s accounting records cannot be considered
sufficient audit evidence to support the financial
statements
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7. Which statement is incorrect regarding the audit
evidence?
a. The greater the risk, the more audit evidence is
likely to be required.
b. The higher the quality, the more may be required
c. Merely obtaining more audit evidence may not
compensate for its poor quality.
d. Obtaining audit evidence relating to a particular
assertion is not a substitute for obtaining audit
evidence regarding another assertion.
8. Which of the following generalizations in assessing the
reliability of audit evidence is incorrect?
a. Audit evidence is more reliable when it is obtained
from independent sources outside the entity.
b. Audit evidence that is generated internally is not
affected by the effectiveness of the controls
imposed by the entity.
c. Audit evidence obtained directly by the auditor is
more reliable than audit evidence obtained
indirectly or by inference.
d. Audit evidence is more reliable when it exists in
documentary form.
9. Which of the following is a general principle relating to
the reliability of audit evidence?
a. Audit evidence obtained from indirect sources
rather than directly is more reliable than evidence
obtained directly by the auditor.
b. Audit evidence provided by photocopies is more
reliable than that provided by facsimiles.
c. Audit evidence obtained from knowledgeable
independent sources outside the client company is
more reliable than audit evidence obtained from
nonindependent sources.
d. Audit evidence provided by original documents is
more reliable than audit evidence generated
through a system of effective controls.
10. 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
11. Which one of the following would be considered the
most persuasive type of audit evidence?
a. Purchase orders from vendors
b. Customer accounts receivable files
c. Computerized general ledger
d. Confirmations from banks
12. Which one of the following would be the most
persuasive type of evidence?
a. Check register
b. Bank statement
c. Observation of assets
d. Inquiry with the in-house attorney
13. Which of the following types of audit evidence is the
least reliable?
a. Evidence from the client’s organization.
b. Evidence derived from a well-controlled system.
c. Evidence from independent outside sources.
d. Original documents.
14. Which one of the following would be the least
persuasive type of evidence?
a. Confirmations returned by bank directly to the
auditor.
AT.106.2
 b. Letters of communication from the Securities c. Is the auditor’s independent execution of
Exchange Commission. procedures or controls that were originally
c. Physical examination of perpetual inventory. performed as part of the entity’s internal control.
d. General ledger information. d. Consists of checking the mathematical accuracy of
documents or records.
15. Audit evidence can come in different forms with
different degrees of persuasiveness. Which of the 20. This consists of looking at a process or procedure being
following is the least persuasive type of evidence? performed by others.
a. Bank statement obtained from the client a. Reperformance c. Observation
b. Oral representations of client b. Recalculation d. Inspection
c. Prenumbered client sales invoices
d. Vendor’s invoices 21. The strongest criticism of the reliability of audit
evidence that the auditor physically observes is that
16. Which statement is incorrect regarding audit evidence? a. The client may conceal items from the auditor
a. The auditor should obtain sufficient appropriate b. The auditor may not be qualified to evaluate the
audit evidence to be able to draw reasonable items he is observing
conclusions on which to base the audit opinion. c. Such evidence is too costly in relation to its
b. Accounting records alone do not provide sufficient reliability
audit evidence. d. The observation must occur at a specific time,
c. The auditor uses professional judgments and which is often difficult to arrange
exercises professional skepticism in evaluating the
quantity and quality of audit evidence, and thus its 22. Recalculations of the client’s computations would not
sufficiency and appropriateness, to support the include which of the following types of evidence?
audit opinion. a. Cutoff
d. The matter of difficulty or expense involved is a b. Footing
valid basis for omitting and audit procedure for c. Extension
which there is no alternative. d. Cross-footing.

17. The auditor obtains audit evidence to draw reasonable 23. Which of the following audit procedures is used
conclusions on which to base the audit opinion by extensively throughout the audit and often is
performing complementary to performing other audit procedures?
a. Risk Assessment procedures a. Inspection c. Inquiry
b. Further Audit Procedures (test of controls and b. Observation d. Confirmation
substantive procedures)
c. Both a and b 24. When may audit procedures be performed?
d. Neither a nor b I. on the balance sheet date.
II. prior to the balance sheet date.
18. Evaluate whether each of the following statements III. subsequent to the balance sheet date.
qualifies as inspection: a. I only.
I. test performed on 100% of the items within a b. I and III only.
population c. II only.
II. selecting items over a certain amount d. I, II, and III.
III. selecting items for the total population on the basis
that was expected to be representative 25. The extent of procedures is affected mostly by which of
a. I, II and III qualify the following factors?
b. I and II qualify; III does not qualify a. the sheer volume of procedures to be applied by
c. I and II do not qualify; III qualifies the auditor.
d. I, II and III do not qualify b. the time of year in which the client takes a physical
inventory in the warehouse.
19. External confirmation c. the auditor's judgment that misstatements are
a. Consists of seeking information of knowledgeable probable in certain balances.
persons, both financial and non-financial, d. the availability of the client's staff at or near the
throughout the entity or outside the party. balance sheet date.
b. Is the process of obtaining a representation of
information or of an existing condition directly from
a third party. - now do your STD-

Page 5 of 7 AT.106.2
 SELF-TEST DRILL (STD)
1. Evidential matters supporting the financial statements
consist of accounting records and other information
available to the auditor. Other information can be
found in:
a. The subsidiary ledgers
b. Worksheet supporting cost allocation
c. Minutes of directors’ meetings
d. Adjusting entries
2. Identify the nature of the evidential matter, (AR for
accounting records, OI for other information)
Lawyer’s reply on status of legal cases
Minutes of board and stockholders meetings
Worksheets in support of cost allocations
Benchmarking
Invoices, paid checks, vouchers
The following are the respective nature of evidential
matter:
a. OI, AR, OI, AR, AR
b. AR, OI, AR, OI, AR
c. OI, OI, AR, OI, AR
d. AR, AR, OI, AR, AR
3. Generally, what source of audit evidence would most
persuasively support audit conclusions?
a. External
b. Inquiry
c. Oral
d. Informal
4. Which statement is incorrect regarding the audit
evidence?
a. The greater the risk, the more audit evidence is
likely to be required.
b. The higher the quality, the more may be required
c. Merely obtaining more audit evidence may not
compensate for its poor quality.
d. Obtaining audit evidence relating to a particular
assertion is not a substitute for obtaining audit
evidence regarding another assertion.
5. Which of the following is a general principle relating to
the reliability of audit evidence?
a. Audit evidence obtained from indirect sources
rather than directly is more reliable than evidence
obtained directly by the auditor.
b. Audit evidence provided by photocopies is more
reliable than that provided by facsimiles.
c. Audit evidence obtained from knowledgeable
independent sources outside the client company is
more reliable than audit evidence obtained from
non-independent sources.
d. Audit evidence provided by original documents is
more reliable than audit evidence generated
through a system of effective controls.
6. Which of the following is correct?
a. The evidence that the auditor accumulates remains
the same from audit to audit, but the general
objectives vary, depending on the circumstances.
b. The general audit objectives remain the same from
audit to audit, but the evidence varies, depending
on the circumstances.
c. The circumstances may vary from audit to audit,
but the evidence accumulated remains the same.
d. The general audit objectives may vary from audit
to audit, but the circumstances remain the same.
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7. Each of the following might by itself, form a valid basis
for an auditor to decide to omit a test, except for the
a. Relative risk involved.
b. Degree of reliance on the relevant internal
controls.
c. Difficulty and expense involved in testing a
particular item.
d. Relationship between the cost of obtaining
evidence and its usefulness.
8. Which of the following types of audit evidence is the
least persuasive?
a. Prenumbered purchase order forms.
b. Bank statements obtained from the client.
c. Test counts of inventory performed by the auditor.
d. Correspondence from the client’s attorney about
litigation.
9. Theoretically, which of the following would not have an
effect on the amount of audit evidence gathered by the
auditor?
a. The type of opinion to be issued.
b. The auditor’s evaluation of internal control.
c. The types of audit evidence available to the
auditor.
d. Whether or not the client reports to the Securities
and Exchange Commission.
10. Which of the following is not a basic procedure used in
an audit?
a. Risk assessment procedures.
b. Substantive procedures.
c. Tests of controls.
d. Tests of direct evidence.
11. Reperformance
a. Consists of looking at a process or procedure being
performed by others.
b. Consists of seeking information of knowledgeable
persons, both financial and non-financial,
throughout the entity or outside the party.
c. Is the process of obtaining a representation of
information or of an existing condition directly from
a third party.
d. Is the auditor’s independent execution of
procedures or controls that were originally
performed as part of the entity’s internal control.
12. Which of the following statements concerning evidence
is correct?
a. Appropriate evidence supporting management’s
assertions should be convincing rather than merely
persuasive.
b. An effective internal control structure contributes
little to the reliability of the evidence created
within the entity
c. The cost of obtaining evidence is not an important
consideration to an auditor in deciding what
evidence should be obtained.
d. A client’s accounting records cannot be considered
sufficient audit evidence to support the financial
statements
13. Example of other information
a. Books of original entry
b. Reconciliation statement
c. Cost allocation work sheet
d. Minutes of meetings
AT.106.2
14. Which of the following statements concerning audit
evidence is correct?
a. To be competent, audit evidence should be either
persuasive or relevant, but need not be both
b. The measure of the validity of audit evidence lies
in the auditor’s judgment
c. The difficulty and expense of obtaining audit
evidence concerning an account balance is valid
basis for omitting the test
d. A client’s accounting data can be sufficient audit
evidence to support the financial statements
15. Which of the following statements is incorrect
regarding the reliability of audit evidence?
a. Oral representation by the client management is
not a valid evidence.
b. Audit evidence obtained directly by the auditor is
more reliable than that one provided by the client
management.
c. The effectiveness of accounting and internal
control adds to the reliability of internal audit
evidence.
d. While internal audit evidence is considered to be
acceptable, the auditor usually prefers audit
evidence form external sources.
16. Which of the following elements ultimately determines
the specific auditing procedures necessary under
circumstances to afford reasonable basis for an
opinion?
a. Auditor judgment c. Relative risk
b. Materiality d. Reasonable assurance
17. Observation
a. Consists of looking at a process or procedure being
performed by others.
b. Consists of seeking information of knowledgeable
persons, both financial and non-financial,
throughout the entity or outside the party.
c. Is the process of obtaining a representation of
information or of an existing condition directly from
a third party.
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d. Is the auditor’s independent execution of procedures
or controls that were originally performed as part
of the entity’s internal control.
18. Reperformance
a. Consists of looking at a process or procedure being
performed by others.
b. Consists of seeking information of knowledgeable
persons, both financial and non-financial,
throughout the entity or outside the party.
c. Is the process of obtaining a representation of
information or of an existing condition directly from
a third party.
d. Is the auditor’s independent execution of
procedures or controls that were originally
performed as part of the entity’s internal control.
19. Which of the following methods is considered the best
combination in obtaining audit evidence assuming
documentary evidence is available to the auditor?
a. Inspection and reperformance
b. Inquiry and inspection
c. Inquiry and analytical procedure
d. Observation and inquiry
20. Which statement is incorrect regarding inspection as
an audit procedure?
a. Inspection consists of examining records or
documents or physical examination of assets.
b. Inspection of tangible assets may provide reliable
audit evidence with respect to their existence and
about the entity’s rights and obligations on the
assets.
c. Inspection of individual inventory items ordinarily
accompanies the observation of inventory
counting.
d. Some documents represent direct audit evidence
of the existence of an asset.
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AT.106.2