Distinguish between internal documentation and external documentation as audit evidence... Distinguish between internal documentation and external documentation as audit evidence.. Defin
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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
Trang 2LỜI 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
Trang 3HỌC PHẦN: PRICIPLES OF AUDITING
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 of each.
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 dung phần 2.2
2 Đoàn Khánh Huyền Làm nội dung phần 2.1
3 Lưu Ngọc Huyền Làm nội dung phần 1.4
5 Vũ Thị Mai Lan Làm nội dung phần 3.3
Trang 47 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
Trang 5Chúng em xin gửi lời cảm ơn chân thành sâu sắc nhất đến cô Lại Thị Thu Thủy – giảng viên môn Principles of Auditing Cô đã tận tình động viên hướng dẫn chúng em từ định hướng đến chi tiết để tháo gỡ những khó khăn trong quá trình học tập 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 không thể tránh khỏi những thiếu sót Vậy nên nhóm chúng em rất mong nhận được những góp 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 tài của nhóm.
Nội dung đề tài thảo luận: The concept of audit evidence? Explain the
meaning of the appropriateness and sufficiency of audit evidence.
Trang 6Distinguish between internal documentation and external documentation
as audit evidence Give examples of each.
1 THE CONCEPT OF AUDIT EVIDENCE I.1 Definition
Auditing evidence is the information collected by an auditor to ascertain the accuracy and compliance of a company's financial statements.
The auditing evidence is meant to support the company's claims made in the financial statements and their adherence to the accounting laws of their legal jurisdiction.
Good auditing evidence should be sufficient, reliable, provided from an appropriate source, and relevant to the audit at hand.
Examples of auditing evidence include: bank accounts, management accounts, payrolls, bank statements, invoices, and receipts.
1.2 Nature of evidence:
Evidence was defined in Chapter 1 as any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria The information varies greatly in the extent to which it persuades the auditor whether financial statements are fairly stated Evidence includes information that is highly persuasive, such as the auditor’s count of marketable securities, and less persuasive information, such as responses to questions of client employees.
The use of evidence is not unique to auditors Evidence is also used extensively by scientists, lawyers, and historians For example, most people are familiar with legal dramas on television in which evidence is collected and used to argue for the guilt or innocence of a party charged with a crime In legal cases, there are well-defined rules of evidence enforced by the judge for the protection of the innocent In scientific experiments, researchers obtain evidence to test hypotheses using controlled experiments, such as a drug trial to test the effectiveness of a new medical 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 use evidence to help them draw conclusions.
Trang 7The 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 comparison
Scientific Experiment Involving Testing a Medicine
Legal Case Involving an Accused Thief
Audit of Financial Statement
Use of the evidence
Determine effects
of using the medicine
Decide guilt or innocence of accused
Determine wether statements are fairly presented Nature of
evidence used
Results of repeated experiments
Direct evidence and testimony by witnesses and parties involved
Various types of audit evidence generated by the auditor, third parties and the client.
Party or parties evaluating evidence
Scientist Jury and Judge Auditor
Certainty of conclusions from evidence
Vary from uncertain to near certainty
Requires guilt beyond a reasonable doubt
High level of assurance
Nature of conclusions
Recommend or not recommend use of medicine
Innocence or guilt of party
Issue one of several alternative types
of audit reports Typical
consequences of incorrect
conclusions from evidence
Society uses ineffective or harmful medicine
Guilty party is not penalized or innocent party is found guilty
Statement users make incorrect decisions and auditor may be sued
Trang 81.3 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 be clearly 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.
- Timing:
+ 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 for accumulation 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 a physical examination to verify the state or condition of an asset.
Trang 9Auditors collect this type of audit evidence themselves Physical examinations are one of the main sources of audit evidence for fixed assets.
Example: Before a check is signed, it is a document; After it is signed, it becomes an asset; And when it is cancelled, it becomes a document again For correct auditing terminology, physical examination of the check can occur only while 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 existing assets 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 particular parties The most effective audit evidence gather for accounts receivable is the circularization sent 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.
- Inspection:
+ Inspection is an audit procedure in which auditors inspect the records,
documents or physical assets of the client.
+ Internal documents have been prepared by the client and have not left the client’s premises (less persuasive).
+ External documents are usually on the client’s premises but were either prepared by a third party or processed by a third party (more persuasive).
+ Documentation (vouching) – auditor examination of client documents and records.
Example: The client often retains a customer order, a shipping document, and a duplicate sales invoice for each sales transaction These documents are useful evidence for the auditor to verify the accuracy of the client’s records for sales transactions.
- Analytical procedures:
+ Analytical procedures include performing various analyses on the financial statements of the client to identify any trends or discrepancies Auditors
Trang 10use 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 through inquiry, it usually cannot be regarded as conclusive because it is not from an independent source and may be biased in the client’s favor.
+ Therefore, when the auditor obtains evidence through inquiry, it is normally 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’s method of recording and controlling accounting transactions, the auditor usually begins by asking the client how the internal controls operate Later, the auditor performs audit tests using inspection and observation to determine whether the transactions are recorded (completeness objective) and authorized (occurrence objective) in the manner stated.
- Recalculation: Recalculation involves rechecking a sample of calculations
made by the client Rechecking client calculations consists of testing the client’s arithmetical accuracy and includes such procedures as extending sales invoices and inventory, adding journals and subsidiary records, and checking the calculation of depreciation 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 internal control processes to check for deficiencies Audit evidence examples for reperformance include reperforming bank or account receivables/payables reconciliations to evaluate the internal controls in place at the client Through reperformance, auditors can also determine the control risk of a client.
Trang 11+ 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 through observation In observation, auditors observe various aspects of the client’s operations or processes It can help auditors get a view of the client’s processes and analyze them for deficiencies Observation is different from a physical examination
as it focuses on processes rather than physical assets.
+ Observation helps auditors in going through the operations and processes
of the client and observing them identify any weaknesses.
Example: The auditor may tour the plant to obtain a general impression of the client’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 confirmation from 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 more reliable 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 only one bank statement from a corporation, he or she would not be able to draw any conclusions about the company’s financial situation.
QUESTIONS CHAPTER 1: