1. In auditing accounts payable, which of the five management assertions identified by SAS No. 31, “Evidential Matter,” is of primary concern to an auditor? Why?
For accounts payable, the auditor is usually most concerned about understatements. An understatement of accounts payable is usually considered more important than overstatements because of potential legal liability. The completeness objective is therefore normally more important in the audit of accounts payable. The auditor is also concerned about overstatements of accounts payable. The existence objective is also therefore important in accounts payable, but usually less so than the completeness objective. Gather Sufficient Evidential Matter
Evidential matter consists of the underlying accounting data and all corroborating information. These include the books of original entry such as general and subsidiary ledgers and documentary materials such as invoices, checks, confirmations and information obtained by the auditor from inquiry, observation, inspection and physical examination. The usefulness of evidential matter is often rated based on its source. The following presumptions can be used: Independent sources provide greater assurance than those secured solely from within the entity. The more effective the internal controls, the more assurance it provides about the reliability of the accounting data. Direct personal knowledge through physical examination, observation, computation and inspection is more persuasive than information obtained indirectly. The amounts and kinds of evidential matter required to support the auditor's opinion are a matter of professional judgement. In most cases, the auditor will find it necessary to rely on evidence that is persuasive rather than convincing. An auditor must work within economic limits. The opinion, to be economically useful, must be formed within a reasonable length of time and at a reasonable cost. 2. The search for unrecorded liabilities is a common...
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