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Topic 5 - Audit Evidence Students Printing
Topic 5 - Audit Evidence Students Printing
Prescribed Reading
Session Topic 5 Materials Exercises Notes
Contents of Topic 5
9 Audit Textbook (1): Chapter 4,5,8,10 Textbook (1): Chapter
Evidence • Ch 4: p.142,147 (audit evidence) 4,5,8,10
• Ch 5: p. 210 (analytical procedures)
• Ch 8: p. 324,366,369 (Suf. & App.E)
Workbook: Chapter 4
1 Overview of Audit Evidence and Audit Procedures
• Ch 10: p. 424 (means of gathering AE)
Textbook (2): Chapter 4
The Appropriateness and Sufficiency
Relevant Guidance (Quy định có liên quan) 2 of Audit Evidence
ISA/VAS315 Identifying and Assessing the Risks of Material Misstatement through
Understanding the Entity and Its Environment
ISA/VAS330 The Auditor's Responses to Assessed Risks
3 Audit Procedures for Obtaining Audit Evidence
ISA/VAS500 Audit Evidence
ISA/VAS501 Audit Evidence – Specific Considerations for Selected Items
ISA/VAS505 External Confirmation
ISA/VAS520 Analytical Procedures
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1.1. Definition of Audit Evidence ISA 500 Audit evidence obtained from audit procedures
Does audit evidence only include data and information underlying the financial report or
accounting data and information?
5 7
1.2 What are Audit procedures? Audit evidence obtained from audit procedures
Audit evidence includes all data and information underlying the financial report and
6 corroborating information. 8
individual assertions embodied in the components of the financial report and to Ø Reliability — influenced by the source, nature of the evidence, and individual
give an audit opinion (ISA 200 and ISA 500). circumstances. (nguồn gốc, nội dung & hoàn cảnh)
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v Reliability varies with: the auditor with a reasonable basis for an opinion on the financial report.
Ø Independence if source of evidence v The quantity of audit evidence required is affected by the:
Ø Nature of evidence v Risk of material misstatements
Ø Quality of client’s internal controls v The quality of Audit evidence
Ø Management’s motivation to misstatement (potential occurrence of frauds)
v Sufficiency is a matter of professional judgment based on:
Ø Nature of audit procedures
ØTimeliness of financial reporting
Ø Cost and benefit analysis
5. Confirmation Existence
7. Re-performance 8. Analytical “Sheet to floor” test for
procedures overstatement
(khai khống)
18 20
3.2. Inspection of documentation 3.3. Observation
v It is the auditor’s inspection of the client’s documents and records. v Use one’s senses to assess client activities.
v Documents and records may be internal or external. Eg.: Look at a process or procedure being performed by others.
Tour plant to obtain a general impression of client’s facilities.
v Note that: the direction of testing determines whether v Observation is rarely sufficient by itself because it provides AE
about the performance at the point in time at which the observation
existence/occurrence or completeness assertion is tested.
takes place or the action being observed
vOften need to corroborate with another kind of evidence.
Existence
(Occurrence)/
Test for overstatement
Valuation and (khai khống) è Reliability is not high, auditor needs to obtain support for the
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Allocation reasonableness of the answers given
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3.5. Confirmations 3.7 Analytical procedures
v The process of obtaining a presentation of information or v What is AP?
of an existing condition directly from a third party. Analytical procedures is the investigation and analysis of fluctuations and
relationships to determine whether there are inconsistencies with other
v Confirmations are usually sent to: relevant information or deviation from the predicted amounts.
Ø Customers/clients (Accounts receivables)
Eg. evaluations of financial information through analysis of plausible
Ø Suppliers (Accounts payables) relationships among both financial and non-financial data.
Ø Banks and other creditors
v When is AP used? è Can be used at all stages of the audit.
Ø Consignee, legal consultants, lawyers, etc.
v How is AP used?
Analytical procedures involve the use of ratios, trend analysis and operating
è Reliability is HIGH for assertions relating to existence,
occurrence, right & obligation. 25 statistics for comparison with internal and external data. 27
3.6. Recalculation and Re-performance The application of Analytical procedures in Audit (1)
v Recalculation: It involves rechecking a sample of calculations made v Analytical procedures are used throughout the audit process and are
by the client. conducted for three primary purposes:
Ø Can be performed through the use of information technology 1. Preliminary analytical review – risk assessment (required by ISA 315)
v In audit planning, preliminary analytical reviews are performed to obtain
an understanding of the business and its environment (eg. financial
v Re-performance: It is the auditor’s independent tests of client
performance relative to prior years and relevant industry and comparison
accounting procedures or controls that were originally done. groups)
v To help assess the risk of material misstatement in order to determine the
nature, timing and extent of audit procedures, ie to help the auditor
è Recalculation is mathematically reliable.
26 develop the audit strategy and programme. 28
The application of Analytical procedures in Audit (2) Types of Analytical procedures
2. Substantive analytical procedures Three types of analytical procedures commonly used by auditors are
v Trend analysis: The analysis of changes in an account
Eg: Comparison of current balances in the financial report with balances of prior periods, and budgeted
v In audit fieldwork, analytical procedures are used as amounts.
substantive procedures when the auditor considers that
v Ratio analysis: comparison across time, or compare to a benchmark to identify
the use of analytical procedures can be more effective or the the relationships between FSs accounts, or relationships between financial
efficient than tests of details in reducing the risk of material and non- financial information.
misstatements at the assertion level to an acceptably low Eg.: Computation of ratios and percentage relationships for comparison with prior years, budgets and industry
averages (ratio analysis).
level.
v Reasonableness analysis: analysis of accounts or changes in accounts that
relating to the development of a model to form an expectation based on financial,
29 non- financial information, or both. 31
Trend analysis:
The application of Analytical procedures in Audit (3) Consider the
fluctuation of an
Trend Analysis
600
account
3. Final analytical review (required by ISA 520) (occurred 540
amounts/ 480
audit to assess whether they are consistent with the auditor’s see the 240
reasonableness 180
understanding of the entity. of that data. 120
60
v If irregularities are found, risk assessment should be performed 0
1 2 3 4 5 6 7 8 9 10 11 12
again to consider any additional audit procedures are necessary. 20x1 20x2
Analyzing the monthly fluctuation of selling expenses of the year 20X1 and
20X2.
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Example: Relationship between assertions, objectives and Ratio Analysis
procedures for inventory X is a corporation.
This year, the rate of rice crop decreased from 30% to 17%.
What are the reasons? What are the audit procedures?
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A is the production and sales company. In the current year, gross profit rate drops Salary of a company
significantly.
è What are the reasons for reducing gross interest rate, identifying possible 34
misstatements?
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