The concept of audit evidence explain the meaning of the appropriateness and sufficiency of audit evidence distinguish between internal documentation and external documentation as audit evidence

Distinguish between internal documentation and external documentation as audit evidence... Distinguish between internal documentation and external documentation as audit evidence.. Disti

TRƯỜNG ĐẠI HỌC THƯƠNG MẠI

Khoa: Kế toán – Kiểm toán

BÀI THẢO LUẬN

Đề tài: The concept of audit evidence? Explain the meaning of the appropriateness and sufficiency of audit evidence Distinguish between internal documentation and external documentation as audit evidence Give examples

PHÂN CÔNG NHIỆM VỤ THẢO LUẬN 2

LỜI CẢM ƠN 3

LỜI CAM KẾT 3

1 THE CONCEPT OF AUDIT EVIDENCE 4

1.1 Definition of audit evidence 5

1.2 Nature of evidence 6

1.3 Audit evidence decisions 7

1.4 Types of audit evidence 10

1.5 Characteristics of audit evidence 16

2 THE APPROPRIATENESS AND SUFFICIENCY OF AUDIT EVIDENCE 10

2.1 Explain the meaning of appropriateness and sufficiency of audit evidence 11

2.2 Factors that affect the sufficient appropriate audit evidence 13

3 DISTINGUISH BETWEEN INTERNAL DOCUMENTATION AND EXTERNAL DOCUMENTATION AS AUDIT EVIDENCE 16

3.1 Definition of internal and external documentation 5

3.2 Types of internal and external documentation 5

3.3 Distinguish between internal documentation and external documentation 7

BẢNG NGHIỆM THU KẾT QUẢ THẢO LUẬN 20

BẢNG ĐÁNH GIÁ KẾT QUẢ HỌP NHÓM THẢO LUẬN 21

PHÂN CÔNG NHIỆM VỤ THẢO LUẬN

HỌC PHẦN: PRICIPLES OFAUDITING

LBp: K55DD1 NhEm: 3

Đề tài: The concept of audit evidence? Explain the meaning of the appropriateness and sufficiency of audit evidence Distinguish between internal documentation and external documentation as audit evidence Give examples

10 Nguyễn Tuấn Minh

II Phân công cụ thể

1 Trần Thị Thu Linh Giám sát toàn bộ công việc, tổng hợp word,

sửa word, tóm tắt nội dung, làm nội dungphần 2.2

2 Đoàn Khánh Huyền Làm nội dung phần 2.1

3 Lưu Ngọc Huyền Làm nội dung phần 1.4

4 Nguyễn Thu Hương Làm slide

5 Vũ Thị Mai Lan Làm nội dung phần 3.3

6 Đỗ Lê Thùy Linh Thuyết trình

7 Trần Khánh Linh Làm nội dung phần 1.3 và 1.5

8 Phạm Như Mai Làm nội dung phần 1.1 và 1.2

10 Nguyễn Tuấn Minh Làm nội dung phần 3.1

LỜI CẢM ƠN

Chúng em xin gửi lời cảm ơn chân thành sâu sắc nhất đến cô Lại Thị ThuThủy – giảng viên môn Principles of Auditing Cô đã tận tình động viên hướng dẫnchúng em từ định hướng đến chi tiết để tháo gỡ những khó khăn trong quá trình họctập cũng như nghiên cứu, từ cách trình bày, cách thu thập tài liệu.

Tuy nhiên do trình độ có hạn và hạn chế về ngôn ngữ nên chúng em khôngthể tránh khỏi những thiếu sót Vậy nên nhóm chúng em rất mong nhận được nhữnggóp ý của cô và các bạn để hoàn thiện đề tài thảo luận

LỜI CAM KẾT

Nhóm 3 chúng em xin cam đoan mọi kết quả của đề tài “The concept of audit

evidence? Explain the meaning of the appropriateness and sufficiency of audit evidence Distinguish between internal documentation and external documentation

as audit evidence Give examples of each.” là bài nghiên cứu của nhóm Nhóm

nghiên cứu hoàn toàn chịu trách nhiệm về tính trung thực về nội dung trong đề tàicủa nhóm

Nội dung đề tài thảo luận: The concept of audit evidence? Explain the

meaning of the appropriateness and sufficiency of audit evidence

Distinguish between internal documentation and external documentation

as audit evidence Give examples of each

1 THE CONCEPT OF AUDIT EVIDENCE

Good auditing evidence should be sufficient, reliable, provided from anappropriate source, and relevant to the audit at hand

Examples of auditing evidence include: bank accounts, managementaccounts, payrolls, bank statements, invoices, and receipts

1.2 Nature of evidence:

Evidence was defined in Chapter 1 as any information used by the auditor todetermine whether the information being audited is stated in accordance with theestablished criteria The information varies greatly in the extent to which itpersuades the auditor whether financial statements are fairly stated Evidenceincludes information that is highly persuasive, such as the auditor’s count ofmarketable securities, and less persuasive information, such as responses toquestions of client employees

The use of evidence is not unique to auditors Evidence is also usedextensively by scientists, lawyers, and historians For example, most people arefamiliar with legal dramas on television in which evidence is collected and used toargue for the guilt or innocence of a party charged with a crime In legal cases, thereare well-defined rules of evidence enforced by the judge for the protection of theinnocent In scientific experiments, researchers obtain evidence to test hypothesesusing controlled experiments, such as a drug trial to test the effectiveness of a newmedical treatment Similarly, gathering evidence is a large part of what auditors do.Although these professionals rely on different types of evidence, and use evidence

in different settings and in different ways, lawyers, scientists, and auditors all useevidence to help them draw conclusions

The table below illustrates six key characteristics of evidence from the perspectives of a scientist doing an experiment, an attorney prosecuting an accused

thief, and an auditor of financial statements There are six bases of comparison.

Notice the similarities and differences among these three professions.

Characteristics of Evidence for a Scientific Experiment, Legal Case, and

Audit of Financial Statements

Basic of Scientific Legal Case Audit of

comparison Experiment Involving an Financial

Involving Accused Thief Statement Testing a

Medicine

Use of the Determine effects Decide guilt or Determine wetherevidence of using the innocence of statements are

Nature of Results of Direct evidence Various types ofevidence used repeated and testimony by audit evidence

experiments witnesses and generated by the

parties involved auditor, third

parties and theclient

Party or parties Scientist Jury and Judge Auditor

evaluating

evidence

Certainty of Vary from Requires guilt High level ofconclusions from uncertain to near beyond a assurance

Nature of Recommend or Innocence or Issue one ofconclusions not recommend guilt of party several

of audit reportsTypical Society uses Guilty party is Statement usersconsequences of ineffective or not penalized or make incorrectincorrect harmful medicine innocent party is decisions and

1.3 Audit evidence decisions

Major decision of an auditor involves determining the appropriate

type and amount of evidence In this judgment the cost factor should be

considered

The auditors' decisions on evidence accumulation can be broken down in to four

sub decisions:

- Audit procedures: It is a detailed instruction for the collection of a type of

audit evidence that is to be obtained at some time during the audit The instructions should beclearly and specifically stated

Example: Obtain cash disbursement journal and compare the payer name, amount, and date on the cancelled cheque with cash disbursement journal

- Sample Size: After selection of audit procedure, the decision of how many

items to test must be made by the auditor for each audit procedures

Example: If 60,000 checks are recorded in cash disbursement journal, only

400 may be selected

- Items to Select: Following the sample size selection, it is necessary to

decide which items in the population to test

Example: The auditor may see the 400 checks based on random selection, weakly selection, amount etc

+ The timing decision is affected by when the client needs the audit to be

completed Also, it can be affected by the auditors' belief on effective timing foraccumulation and the availability of audit staff

Example: The auditor often prefer to count inventory up close to the balance sheet dates

+ The audit procedure often incorporates the other three sub decisions

Example: Obtain the October cash disbursement journal and compare the

payee, name, amount, and date on the cancelled cheque with cash disbursement

journal for a randomly selected sample of 40 cheque numbers.

1.4 Types of audit evidence

- Physical examination: Physical examination consists of auditors

physically verifying the existence of various assets On the other hand, auditors can also use aphysical examination to verify the state or condition of an asset

Auditors collect this type of audit evidence themselves Physical examinations areone of the main sources of audit evidence for fixed assets.

Example: Before a check is signed, it is a document; After it is signed, itbecomes an asset; And when it is cancelled, it becomes a document again Forcorrect auditing terminology, physical examination of the check can occur onlywhile the check is an asset Physical examination is a direct means of verifying that

an asset actually exists (existence objective), and to a lesser extent whether existingassets are recorded (completeness objective)

- Confirmation:

+ Confirmations consist of auditors sending circularization to third-parties,which mainly include banks, accounts payables, and receivables Through confirmations,auditors confirm the closing balance recorded in the financial statements for particularparties The most effective audit evidence gather for accounts receivable is the circularizationsent to receivable balance parties The same is true for accounts payable and bank balances.+ External confirmations allow auditors to obtain third-party accounts of the balances recorded by the client in its financial statements

Example: A sample of accounts receivable should be confirmed by the auditor

Example: The client often retains a customer order, a shipping document, and

a duplicate sales invoice for each sales transaction These documents are usefulevidence for the auditor to verify the accuracy of the client’s records for salestransactions

- Analytical procedures:

+ Analytical procedures include performing various analyses on the financialstatements of the client to identify any trends or discrepancies Auditors

8

use their own calculations to perform analytical procedures Similarly, analytical procedures can help obtain an overall view of the changes in the financial year.+ Analytical procedures allow auditors to analyze the client’s financial statements to identify discrepancies or trends.

Example: An auditor may compare the gross margin percent in the current year with the preceding year’s

- Inquiries of the client:

+ Inquiry is the obtaining of written or oral information from the client in response to questions from the auditor

+ Although considerable evidence is obtained from the client throughinquiry, it usually cannot be regarded as conclusive because it is not from an independentsource and may be biased in the client’s favor

+ Therefore, when the auditor obtains evidence through inquiry, it isnormally necessary to obtain corroborating evidence through other procedures.(Corroborating evidence is additional evidence to support the original evidence)

Example: When the auditor wants to obtain information about the client’smethod of recording and controlling accounting transactions, the auditor usuallybegins by asking the client how the internal controls operate Later, the auditorperforms audit tests using inspection and observation to determine whether thetransactions are recorded (completeness objective) and authorized (occurrenceobjective) in the manner stated

- Recalculation: Recalculation involves rechecking a sample of calculations

made by the client Rechecking client calculations consists of testing the client’sarithmetical accuracy and includes such procedures as extending sales invoices andinventory, adding journals and subsidiary records, and checking the calculation ofdepreciation expense and prepaid expenses A considerable portion of auditors’recalculation is done by computer-assisted audit software

Example: Checking the calculation of depreciation expense and prepaid expenses

- Reperformance:

+ Reperformance is the process of auditors reperforming various internalcontrol processes to check for deficiencies Audit evidence examples for reperformanceinclude reperforming bank or account receivables/payables reconciliations to evaluate theinternal controls in place at the client Through reperformance, auditors can also determinethe control risk of a client

+ Reperformance allows auditors to reperform various internal control procedures of the client to identify any weaknesses.

Example: The cycle of sales recording process, procedures of payrolls calculation

- Observation:

+ The next type of audit evidence that auditors can obtain is throughobservation In observation, auditors observe various aspects of the client’s operations orprocesses It can help auditors get a view of the client’s processes and analyze them fordeficiencies Observation is different from a physical examination as it focuses on processesrather than physical assets

+ Observation helps auditors in going through the operations and processes ofthe client and observing them identify any weaknesses

Example: The auditor may tour the plant to obtain a general impression of theclient’s facilities

1.5 Characteristic of audit evidence

An audit envidence requires a few characteristics to be considered valid The characteristics are as follows:

- Nature: It is a term that describes the type of data received The details may

be given in a variety of ways, including legal records, presentations, or oral confirmationfrom employees

- Relevance: It refers to the pertinence of the information to provide an

opinion

- Reliability: It refers to determining whether or not the material can be

trusted or used to form an opinion It is important to understand the information’s source

- Source: Accounting evidence may be collected either directly from the

corporation or from a third party Externally sourced data is usually thought to be morereliable and is therefore favored

- Sufficiency: It considers whether the information given is of sufficient

quantity to enable auditors to make an accurate determination If an auditor was issued onlyone bank statement from a corporation, he or she would not be able to draw any conclusionsabout the company’s financial situation

QUESTIONS CHAPTER 1:

10

1 Audit evidence obtained directly by the auditor will not be reliable if:

A. The auditor lacks the qualifications to evaluate the evidence

B. It is provided by the client’s attorney

C. The client denies its veracity

D. It is impossible for the auditor to obtain additional corroboratory evidence

2 What documents are considered audit evidence?

B. Financial report

C. Documents and information obtained from previous audits

D. All 3 answers above

3 The least convincing type of proof of payment to the merchant is:

A. Supplier sales invoice

B. Bank statement provided by customer

C. Calculations made by auditors

D. Oral evidence

4 The methods of obtaining audit evidence are:

A. Check, observe

C. Verification and confirmation

D. Analysis and evaluation

E. All of the above