Audit Evidence

Auditors use many different types of procedures to gather many different types of evidence during an audit. The types of procedures are listed below:

Types of Procedures

Inquiry

Reperformance

Inspection of documents/records

Observation

Inspection of tangible assets

Recomputation

Confirmation

Analytical Procedures

Part 1 (30 points)

· Identify the type of procedure from the list above that best describes the procedure performed.

(NOTE: Each type of procedure will be used at least once.)

· Rank the reliability of each type of evidence gathered by the procedure on a scale of 1 to 5 (1 = least reliable and 5 = most reliable)

· Describe your reason for your ranking

Part 2 (30 points)

· Identify one relevant assertion(s) the procedure provides evidence about (NOTE: You may not use the same assertion more than 4 times)

· Explain how the procedure provides evidence for the assertion.

Please make your analysis complete but concise. Your reasons for your answers must be complete sentences. Format your submission in the form of a table as shown. Do not limit your analysis to the space available. Late submissions will be penalized 20%. No submissions will be accepted more than one week late.

PART 1

PART 2

Procedure

Type of Procedure

Reliability Ranking

Reliability Reason

Relevant Assertion

Assertion Explanation

Count cash on hand

(SAMPLE)

Inspection of tangible assets

5

The auditor creates the evidence by examining the assets themselves. This provides the best evidence because the auditor does not rely on any other factors for the reliability of the information.

Existence

Inspecting the cash provides strong evidence that the cash included on the balance sheet actually exists. This procedure creates physical evidence about the existence of the cash.

Obtain analyses of cash balances and reconcile them to the General Ledger

Inquiry

Valuation and Accuracy

Review the client’s bank statement reconciliation

Reperformance

Accuracy

Doing client’s accounting to make sure the company followed its own rules

Inspect bank cut-off statement and compare to outstanding checks as of year-end

Anlytical Procedures

Accuracy

Providing assurance that the amount of cash shown on the balance sheet was not overstated by omission of one or more checks from the list of checks outstanding.

Review aged trial balance of accounts receivable

Reperformance

Confirm receivables with customers

Confirmation

3

Confirmations are among the most reliable types of evidence, as they constitute external evidence sent directly to the auditor. But in this case, while a returned account receivable confirmation provides reliable evidence about the existence of an obligation, it does not address whether the debtor can actually pay the obligation. The account actually may be worthless

existence

Providing evidence about the assertion of existence of account receivables.

Observe the client’s inventory-taking and make test counts

Observation

(Physical Exam)

4

Completeness

During the observation of the client’s physical inventory, the auditors are alert for inventory items that are not counted or included in the inventory summary.

Make test counts of client’s inventory during inventory-taking

Inspection of Intangible

5

The auditor immediately made the test counts. The evidence is obtained directly from the auditor’s test. It does not come from any other resource.

Existence Valuation

Accuracy

By making test
counts of client’s inventory during inventory-taking, the auditor

Compare rental income to lease agreements

Analytical Procedures

3

Accuracy

Test clerical accuracy of the extensions on an inventory schedule

Observation

2

Valuation

Testing employees during their working, the auditor would value company’s internal control

Inspect equipment in the client’s plant

Inspection of tangible of plant asset

5

The auditor directly toured to client’s plant, independently inspected a plant asset and obtained evidence directly from their inspection without relying on any other resources.

Existence

Physical examining equipment may reveal that the company did not set up expenditures as business assets in the books of account instead of treating as expense

Ask plant managers whether there is any obsolete equipment

1

The evidence obtained from plant managers is not really reliable

Inspect ownership documents for significant equipment

Inspection of documents

4

The auditor obtains an ownership documents from outside source. Therefore, evidence obtained is reliable.

Right to the Assets

To verify the ownership of the client of significant equipment, the auditor must inspect documentary evidence

Analyze repair and maintenance expense accounts

Recomputation

2

The evidence obtained from sources in the client’s book t is less reliable.

Accuracy

The auditor independently made computation to prove the mathematical accuracy of the client’s analyses and records

Reconcile liabilities with monthly statements from creditors

Reperformance

3

Evidence obtained from the bank statement of creditor ( the third party) should be reliable

Occurrence

If there is a difference between the Control Account in Current Liabilities and the total Accounts Payable balance as per the supplier accounts, a different amount will be displayed

Obtain a management representation letter.

Inquiry

1

A representation letter the auditor obtained from the client’s management does not provide reliable evidence.

Evaluation

· Analytical procedures:Comparing what’s on the client’s books to what’s expected to be on the books.

· Confirmations:Asking for independent verification supporting management assertions.

· Inspection of records:Asking the company for relevant documents in support of management assertions.

· Observation:Watching the client’s employees do their jobs to obtain an understanding of how each job is done.

· Recalculation:Verifying the mathematical accuracy of your client’s computations.

· Reperformance:Doing the client’s accounting or internal control procedure to make sure the company is following its own rules.

· Scanning:Looking over client.dummies.com/how-to/content/gathering-audit-evidence.html#glossary-transactions”>son the general ledger or other accounting reports.

· Client tour:Checking to make sure all assets shown on the client’s balance sheet exis