Audit
Evidence
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 2
Learning Objective 1
Contrast audit evidence
with evidence used by
Nature of Evidence
The use of evidence is not unique to auditors.
Evidence is also used by scientists, lawyers,
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 4
Learning Objective 2
Identify the four audit evidence
decisions that are needed to
Audit Evidence Decisions
1. Which audit procedures to use
2. What sample size to select for a given procedure 3. Which items to select from the population
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 6
Audit Program
It includes a list of the audit procedures the auditor considers necessary.
Learning Objective 3
Specify the characteristics
that determine the
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 8
Persuasiveness of Evidence
Competence Sufficiency Combined effect
Competence
Relevance
Independence of provider
Effectiveness of internal controls Auditor’s direct knowledge
Qualifications of individuals Degree of objectivity
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 10
Learning Objective 4
Identify and apply the
seven types of evidence
Types of Audit Evidence
1. Physical examination
3. Documentation
5. Inquiries of the client
6. Reperformance 2. Confirmation
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 12
Relationships
Auditing standards
Qualifications
and conduct Reporting
Evidence accumulation
Types of evidence
Broad guidelines
Relationships
Types of evidence
Sample size
Timing of tests Audit
procedures
Items to select
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 14
Information
Often Confirmed
Information Source
Assets
Cash in bank Bank
Accounts receivable Customer Notes receivable Maker
Information
Often Confirmed
Information Source
Liabilities
Accounts payable Creditor Notes payable Lender
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 16
Information
Often Confirmed
Information Source
Owners’ Equity
Information
Often Confirmed
Information Source
Other Information
Insurance coverage Insurance company Contingent liabilities Bank, lender, and
client’s counsel Bond indenture agreements Bondholder
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 18
Criteria to Determine
Competence
Type of evidence
Independence of provider
Effectiveness of client’s
internal controls
Auditor’s direct
knowledge
Qualifications of provider
Terms and Types of Evidence
Terms Types of Evidence
Examine Documentation
Scan Analytical procedures Read
Analytical procedures Documentation
Compute
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 20
Terms and Types of Evidence
Terms Types of Evidence
Trace Documentation Compare Documentation
Count
Observation
Physical examination Observe
Learning Objective 5
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 22
Audit Documentation
Purposes of audit documentation
Ownership of audit files
Learning Objective 6
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 24
Audit File Contents
and Organization
Derrickson Associates Trial Balance
12/31/2003
Cash $165,237 Accounts Receivable 275,050 Prepaid Insurance 37,795 Interest Receivable 20,493
Financial Statements and
Audit Report Working Trial Balance Adjusting Journal Entries Contingent
Liabilities
Operations
Liabilities and Equity
Assets
Analytical Procedures Test of Controls & Substantive
Permanent Files
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 26
Current Files
Audit program
General information Working trial balance
Relationship of Audit Documentation
to Financial Statements
FINANCIAL STATEMENTS
Cash 122
Acc. ……….
WORKING TRIAL BALANCE
Prelim. AIE’s Final Cash 212 (90) 122
AIE’s Expense 90
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 28
Relationship of Audit Documentation
to Financial Statements
LEAD SCHEDULE – CASH A-1 Per G/1 AIE’s Final Petty Cash A-2 5 5 Cash in Bank:
Relationship of Audit Documentation
to Financial Statements
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 30
Relationship of Audit Documentation
to Financial Statements
Types of Supporting Schedules
Analysis Trial balance
Reconciliation of amounts Tests of reasonableness Summary of procedures
Examination of supporting documents Informational
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 32
Learning Objective 7
Describe how e-commerce
affects audit evidence and
Effect of E-commerce
Audit evidence is increasingly in electronic form.
Auditors use computers to read and examine evidence.
©2003 Prentice Hall Business Publishing, Auditing and Assurance Services 9/e, Arens/Elder/Beasley 7 - 34
