The Audit

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When you use this revision guide, please remember these following rules:

1.This is just a guideline. It only intends to improve your revision process. It certainly does not intend to cover everything in the exam. It is very possible that some questions, which are not covered in this revision guide, may appear in the exam. 2.You should refer primarily to other material, such as textbook, lecture notes and class exercises. 3.When you use this guideline, try to understand the fundamental principles and please don’t try to memorize the information.

Topic 3B- Management assertions and audit objectives

-Define management assertions and the related audit objectives -Describe management assertions related to class of transactions, balances and presentation and disclosures -List out and describe general transaction related audit objectives, balance related audit objectives and presentation and disclosure audit objectives -Understand specific audit objectives and how they are linked to general audit objectives and management assertions

Topic 4 – Audit evidence and Planning (Chapter 5 and 6)

AUDIT EVIDENCE

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:
It is also used extensively by scientists, solicitors and historians

Audit evidence decisions
Audit procedures:
Detailed instruction for the collection of audit evidence
Sample size:
Is likely to vary from audit to audit
Items to collect:
Which items in the population to test
Timing:
Can vary from early in the accounting period to long after it has ended •Audit program:
List of audit procedures for an audit area or an entire audit •Usually includes sample sizes, items to select and timing of the tests Most auditors use computers to prepare them

Persuasiveness of evidence

ASA 500 requires the auditor to obtain sufficient appropriate evidence to support the opinion issued Two determinants of the persuasiveness of evidence:
oCompetence
oSufficiency

Competence (reliability)
Degree to which evidence can be considered believable or worthy of trust •Relevance: Relevant to the audit objective
Independence of provider: Outside evidence is more reliable than inside evidence •Effectiveness of client’s internal controls: Evidence is more reliable when controls are effective •Auditor’s direct knowledge: Evidence obtained directly by the auditor is more competent than indirect evidence •Qualifications of individuals providing the information

Degree of objectivity: Objective evidence is more reliable than evidence requiring considerable judgment •Timeliness: Can refer to either when it is accumulated or to the period covered by the audit

Sufficiency
Sufficiency of evidence is measured primarily by the sample size the auditor selects •Factors determining the appropriate sample size:
oAuditor’s expectation of misstatements
oEffectiveness of client’s internal controls
Individual items tested also affect the sufficiency of evidence: e.g. items with large dollar values and items with a high likelihood of misstatement

Types of audit evidence
Understand the nature and purpose of different types of evidence, their relative reliability, their relative costs. •Physical examination
Confirmation
Documentation
Observation
Inquiries of the client
Re-performance
Analytical procedures

AUDIT PLAN
Discuss the importance of an audit plan
Understand issues to be considered in making client acceptance decisions and perform initial audit planning. •Gain an understanding of the client’s business and industry. •Understand the purposes of the analytical procedures used in the audit plan •Understand the purposes of audit documentation and to organize audit documentation

Topic 5- Materiality and risks

-Explain the...
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