Materi Auditing Dan Atestasi Sesi 8 November 2009 Bimo Wijayanto 591

8/12/2019 Materi Auditing Dan Atestasi Sesi 8 November 2009 Bimo Wijayanto 591

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PPAK UGM 2009

AUDIT EVIDENCE,

AUDIT PROCEDURE& DOCUMENTATION


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AUDIT EVIDENCE : INTRODUCTION

Auditors require sufficient, appropriate audit evidencein order to form their opinion about the financialstatements

The circumstances of the audit determine whichevidence is sufficient and appropriate

Audit evidence can be compared to the evidence

required in a court of law, although the auditorrequires a different standard of evidence to theprosecution in a criminal case


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FINANCIAL REPORT ASSERTIONS

Existence: assets & liabilities exist

Rights and Obligations

Valuation: assets & liabilities are recorded atappropriate carrying value

Occurence: transactions & other events occuredduring relevant period


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FINANCIAL REPORT ASSERTIONS

Completeness: no unrecorded assets, liabilities,transactions or other events

Measurement: transaction recorded at the properamount in the proper period

Disclosure: components properly disclosed, classified& described


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SUFFICIENT APPROPRIATE EVIDENCE (1)

Obtain sufficient apropriate evidence to be able todraw reasonable conclusions on which to base theaudit opinion

Through judgment the auditor must determine what issufficient and appropriate

Sufficienncy is the measure of the quantity of evidenceobtained

Appropriateness relates to the relevance and reliabilityof audit evidence

Generally the auditor must rely on evidence which ispersuasive rather than conclusive


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SUFFICIENTAPPROPRIATE EVIDENCE (2)

It depends on

Risk of mistatement (affected by the nature of the item,adequacy of internal control, type of business, situations

which may exert unusual influence on management andfinancial position

The materiality of the item

Previous audit experience

Results of auditing procedures, and

The type of information available


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Corroborating information includes:

Analytical evidence

Confirmations Documentary evidence

Written representations


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Mathematical evidence

Oral evidence

Physical evidence Electronic evidence


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AUDIT PROCEDURES

Compliance procedures test to obtain reasonableassurance that the internal controls which the auditorwill rely on are in place (procedures to obtain anunderstanding and test of control)

Substantive procedures tests to obtain evidence as tocompleteness, accuracy and validity of accountingdata. Include tests of detail transactions and balances


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AUDITING PROCEDURES

Inspecting

Tracing

Vouching Confirming

Inquiring

Counting

observing


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Multiple Choice Question (I)

In considering the relationship between materiality and

audit evidence, the auditor would conclude that:

A. The materiality level has no bearing on the amountof evidence required

B. For an account balance that is less than the tolerableerror, there is no need for evidence

C. The lower the materiality level, the greater theamount of evidence required

D. The higher the materiality level, the greater theamount of evidence required


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Multiple Choice Question (II)

Audit evidence supporting the financial statementsconsists of the underlying accounting data and all the

corroborating information available to auditor. Which of

the following is an example of corroboratinginformation:

A. General and Subsidiary Ledgers

B. Minutes of meeting

C. Accounting manuals

D. Worksheets supporting cost allocation


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Multiple Choice Question (III)

When the auditor undertakes physical observation ofinventory in a retail jewellery store as apart of the audit

procedure for obtaining corroborating evidence, the

strongest criticism of the reliability of audit evidence is

that:

A. The client may conceal items from the auditor

B. The auditor may not be qualified to evaluate the items beingobserved

C. The cost of conducting physical observations is unjustified in

relation to the reliability of the audit evidence obtainedD. Physical observation must occur at a specific time of the year


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Example 1 Substantive Procedures,

Accounting EstimatesYour client, Super Auto Accessories Ltd (SAA),

manufactures a car audio systems, with a year end of30 June 2009. In December 2008, MV changed itsmanufacturing process to make its product morereliable. Due to this increased reliability, the companydecided to increase warranty on its products from 3years to 5 years in relation to all sales made from 1

January 2009


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Accounting Estimates cont From managements review of warranty claims relating

to the new products. It was noted that claims weredown by about 20% compared with the old product.Management made an estimate of the provision forwarranty of $ 4,000,000 for 30 June 2009, up from $3,500,000 for the previous year.


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Accounting Estimates-cont Required

a. What are the main audit assertions you should

consider for this part of the audit for SAA? Describethe types of substantive procedures you would performto cover these assertions.

b. Discuss any special risks in auditing provisions for

warranty (and in auditing SAAs provision for warrantyin particular)!


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Accounts Payables You are the audit senior for the audit of Grand JubileeLtd and have been given

the audit file to review. The balance date is 31 December 2009 and themateriality for the client has been set at $ 200,000. You obtained theinformation listed below from your review of the audit file.

1. The balance noted for accounts payable in the GL at 31 December 2009

is $ 158,000 which compares with a balance as at 31 December 2008 of $342,0002. The audit assistant noted in the file: because the a/p balance is

immaterial in the current year, only limited works is necessary.3. The only work performed by the audit assistant was to select the 3

largest payables from the clients detailed purchases ledger (which hadbeen compared with the general ledger) and compare the balances with

photocopies of suppliers statement


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Accounts Payables-cont Required

a. Outline any queries you would raise with the auditassistant.

b. Describe the additional audit procedures youbelieve should be performed to ensure that theaccounts payable balance is fairly stated


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SUMMARY

The auditor needs sufficient and appropriate auditevidence in order to form an opinion on the financialstatements

Sufficiency relates to amount and appropriatenessrelates to reliability

Compliance testing allows evaluation of internalcontrol, the results of which influence the substantive

testing to be performed Different forms of evidence help the auditor to form

opinions on different assertions in the financialstatements.

Documents

Materi Auditing Dan Atestasi Sesi 8 November 2009 Bimo Wijayanto 591