Audit Evidence Chapter http://www.authorstream.com/shengvn/ ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley -7 5- Learning Objective Contrast audit evidence with evidence used by other professions ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 7-2 Nature of Evidence Any information used by the auditor to determine whether the information being audited is stated in accordance with established criteria The use of evidence is not unique to auditors Evidence is also used by scientists, lawyers, and historians ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 7-3 Nature of Evidence ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 7-4 Learning Objective Identify the four audit evidence decisions that are needed to create an audit program ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 7-5 Audit Evidence Decisions Which audit procedures to use What sample size to select for a given procedure Which items to select from the population When to perform the procedures (timing) ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 7-6 Audit Program It includes a list of the audit procedures the auditor considers necessary    Sample sizes Items to select Timing of the tests Most auditors use audit software packages to generate audit programs ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 7-7 Learning Objective Specify the characteristics that determine the persuasiveness of evidence ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 7-8 Persuasiveness of Evidence Two determinants: Appropriateness Sufficiency The persuasiveness of evidence can be evaluated only after considering the combination of appropriateness and sufficiency ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 7-9 Six Characteristics of Reliable Evidence Independence of provider Effectiveness of client’s internal controls Auditor’s direct knowledge Qualification of individuals providing the information Degree of objectivity Timeliness ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 10 Audit Documentation Audit documentation is the principal record of auditing procedures applied, evidence obtained, and conclusions reached by the auditor in the engagement ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 29 Audit Documentation  Purposes of audit documentation Ownership of audit files Confidentiality of audit files ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 30 Sarbanes-Oxley Act The Sarbanes-Oxley Act requires auditors of public companies to prepare and maintain audit working papers for a period of no less than seven years ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 31 Learning Objective Prepare organized audit documentation ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 32 Audit File Contents and Organization ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 33 Permanent Files These files are intended to contain data of a historical or continuing nature pertinent to the current audit ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 34 Current Files  Audit program General information Working trial balance Adjusting and reclassification entries Supporting schedules ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 35 Relationship of Audit Documentation to Financial Statements ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 36 Types of Supporting Schedules  Analysis Trial balance or list Reconciliation of amounts Tests of reasonableness ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 37 Types of Supporting Schedules  Summary of procedures Examination of supporting documents Informational Outside documentation ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 38 Preparation of Audit Documentation Proper identification of each file Files indexed and cross-referenced Clear indication of work performed Include sufficient information State conclusions reached ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 39 Preparation of Audit Documentation ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 40 Learning Objective Describe how technology affects audit evidence and audit documentation ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 41 Effect of Technology  Audit evidence is increasingly in electronic form  Auditors must evaluate how electronic information affects their ability to gather evidence  Auditors use computers to read and examine evidence  Software programs are typically Windows-based ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 42 End of Chapter ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 57- -543 ... Publishing, Auditing 14/e, Arens/ Elder/Beasley - 12 Learning Objective Identify and apply the eight types of evidence used in auditing ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley... Business Publishing, Auditing 14/e, Arens/ Elder/Beasley - 10 Relationships Among Audit Evidence and Persuasiveness Audit Evidence Decisions Audit procedures and timing Sample size and items to select... also used by scientists, lawyers, and historians ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley 7-3 Nature of Evidence ©2012 Prentice Hall Business Publishing, Auditing