審計(jì)學(xué)一種整合方法阿倫斯英文版后答案Chapter7SolutionsManual

1、Chapter 7Audit Evidence Review Questions7-1In both a legal case and in an audit of financial statements, evidence is used by an unbiased person to draw conclusions. In addition, the consequences of an incorrect decision in both situations can be equally undesirable. For example, if a guilty person i

2、s set free, society may be in danger if the person repeats his or her illegal act. Similarly, if investors rely on materially misstated financial statements, they could lose significant amounts of money. Finally, the guilt of a defendant in a legal case must be proven beyond a reasonable doubt. This

3、 is similar to the concept of sufficient appropriate evidence in an audit situation. As with a judge or jury, an auditor cannot be completely convinced that his or her opinion is correct, but rather must obtain a high level of assurance.The nature of evidence in a legal case and in an audit of finan

4、cial statements differs because a legal case relies heavily on testimony by witnesses and other parties involved. While inquiry is a form of evidence used by auditors, other more reliable types of evidence such as confirmation with third parties, physical examination, and documentation are also used

5、 extensively. A legal case also differs from an audit because of the nature of the conclusions made. In a legal case, a judge or jury decides the guilt or innocence of the defendant. In an audit, the auditor issues one of several audit opinions after evaluating the evidence.7-2The four major audit e

6、vidence decisions that must be made on every audit are:1. Which audit procedures to use.2. What sample size to select for a given procedure.3. Which items to select from the population.4. When to perform the procedure.7-3An audit procedure is the detailed instruction for the collection of a type of

7、audit evidence that is to be obtained. Because audit procedures are the instructions to be followed in accumulating evidence, they must be worded carefully to make sure the instructions are clear.7-4An audit program for accounts receivable is a list of audit procedures that will be used to audit acc

8、ounts receivable for a given client. The audit procedures, sample size, items to select, and timing should be included in the audit program.7-5The auditor must obtain sufficient appropriate evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial st

9、atements under audit. There are three major phrases of the standard.7-5 (continued)PHRASEMEANING OF PHRASEObtain sufficient appropriate evidenceThe auditor must obtain evidence that is reliable and there must be a reasonable quantity of that evidence.By performing audit proceduresThe auditor perform

10、s audit procedures to meet audit objectives using the eight types of evidence.To afford a reasonable basis for an opinion regarding the financial statementsThe auditor cannot expect to be completely certain that the financial statements are fairly presented but there must be persuasive evidence. The

11、 collection of evidence gathered by the auditor provides the basis for the auditors opinion. 7-6There are two primary reasons why the auditor can only be persuaded with a reasonable level of assurance, rather than be convinced that the financial statements are correct:1. The cost of accumulating evi

12、dence. It would be extremely costly for the auditor to gather enough evidence to be completely convinced.2. Evidence is normally not sufficiently reliable to enable the auditor to be completely convinced. For example, confirmations from customers may come back with erroneous information, which is th

13、e fault of the customer rather than the client.7-7The two determinants of the persuasiveness of evidence are appropriateness and sufficiency. Appropriateness refers to the relevance and reliability of evidence, or the degree to which evidence can be considered believable or worthy of trust. Appropri

14、ateness relates to the audit procedures selected, including the timing of when those procedures are performed. Sufficiency refers to the quantity of evidence and it is related to sample size and items to select.7-8 Following are six characteristics that determine reliability and an example of each.F

15、ACTORDETERMINING RELIABILITY EXAMPLE OFRELIABLE EVIDENCEIndependence of providerConfirmation of a bank balanceEffectiveness of clients internal controlsUse of duplicate sales invoices for a large well-run companyAuditors direct knowledgePhysical examination of inventory by the auditorQualifications

16、of providerLetter from an attorney dealing with the clients affairsDegree of objectivityCount of cash on hand by auditorTimelinessObserve inventory on the last day of the fiscal year7-9TYPES OF AUDIT EVIDENCEEXAMPLES1. Physical examination Count petty cash on hand Examine fixed asset additions2. Con

17、firmation Confirm accounts receivable balances of a sample of client customers Confirm clients cash balance with bank3. Documentation Examine cancelled checks returned with cutoff bank statement Examine vendors invoices supporting a sample of cash disbursement transactions throughout the year4. Anal

18、ytical procedures Evaluate reasonableness of receivables by calculating and comparing ratios Compare expenses as a percentage of net sales with prior years percentages5. Inquiries of the client Inquire of management whether there is obsolete inventory Inquire of management regarding the collectibili

19、ty of large accounts receivable balances7-9(continued)TYPES OF AUDIT EVIDENCEEXAMPLES6. Recalculation7. Reperformance8. Observation Recompute invoice total by multiplying item price times quantity sold Foot the sales journal for a one-month period and compare all totals to the general ledger Agree s

20、ales invoice price to approved price list Match quantity on purchase invoice to receiving report Observe client employees in the process of counting inventory Observe whether employees are restricted from access to the check signing machine7-10The four characteristics of the definition of a confirma

21、tion are:1. Receipt2. Written or oral response3. From independent third party4. Requested by the auditorA confirmation is prepared specifically for the auditor and comes from an external source. External documentation is in the hands of the client at the time of the audit and was prepared for the cl

22、ients use in the day-to-day operation of the business.7-11Internal documentation is prepared and used within the clients organization without ever going to an outside party, such as a customer or vendor.Examples: check request form receiving report payroll time card adjusting journal entryExternal d

23、ocumentation either originated with an outside party or was an internal document that went to an outside party and is now either in the hands of the client or is readily accessible.Examples: vendors invoice cancelled check cancelled note validated deposit slip7-12Analytical procedures are useful for

24、 indicating account balances that may be distorted by unusual or significant transactions and that should be intensively investigated. They are also useful in reviewing accounts or transactions for reasonableness to corroborate tentative conclusions reached on the basis of other evidence.7-13The mos

25、t important reasons for performing analytical procedures are the following:1. Understanding the clients industry and business2. Assessment of the entitys ability to continue as a going concern3. Indication of the presence of possible misstatements in the financial statements4. Reduction of detailed

26、audit tests7-14The decrease of the current ratio indicates a liquidity problem for Harper Company since the ratio has dropped to a level close to the requirements of the bond indenture. Special care should be exercised by the auditor to determine that the 2.05 ratio is proper since management would

27、be motivated to hide any lower ratio. The auditor should expand procedures to test all current assets for proper cutoff and possible overstatement and to test all current liabilities for proper cutoff and possible understatement.7-15Attention directing analytical procedures occur when significant, u

28、nexpected differences are found between current years unaudited financial data and other data used in comparisons. If an unusual difference is large, the auditor must determine the reason for it, and satisfy himself or herself that the cause is a valid economic event and not an error or misstatement

29、 due to fraud.When an analytical procedure reveals no unusual fluctuations, the implication is minimized. In that case, the analytical procedure constitutes substantive evidence in support of the fair statement of the related account balances, and it is possible to perform fewer detailed substantive

30、 tests in connection with those accounts. Frequently, the same analytical procedures can be used for attention directing and for reducing substantive tests, depending on the outcome of the tests. Simple procedures such as comparing the current year account balance to the prior year account balance i

31、s more attention directing (and provides less assurance) than more complex analytical procedures; i.e., those which rely on regression analysis. More sophisticated analytical procedures help the auditor examine relationships between several information variables simultaneously. The nature of these t

32、ests may provide greater assurance than simple procedures.7-16The statement is correct. Except for certain accounts with small dollar balances, analytical procedures are essential to help the auditor identify trends in a clients business and to see the relationship between the clients performance an

33、d industry averages. However, the auditor is responsible for gathering sufficient appropriate evidence in addition to the evidence obtained as a result of the analytical procedures.7-17The purposes of audit documentation are as follows:1. To provide a basis for planning the audit. The auditor may us

34、e reference information from the previous year in order to plan this years audit, such as the evaluation of internal control, the time budget, etc.2. To provide a record of the evidence accumulated and the results of the tests. This is the primary means of documenting that an adequate audit was perf

35、ormed.3. To provide data for deciding the proper type of audit report. Data are used in determining the scope of the audit and the fairness with which the financial statements are stated.4. To provide a basis for review by supervisors and partners. These individuals use the audit documentation to ev

36、aluate whether sufficient appropriate evidence was accumulated to justify the audit report.Audit documentation are used for several purposes, both during the audit and after the audit is completed. One of the uses is the review by more experienced personnel. A second is for planning the subsequent y

37、ear audit. A third is to demonstrate that the auditor has accumulated sufficient appropriate evidence if there is a need to defend the audit at a later date. For these uses, it is important that the audit documentation provide sufficient information so that the person reviewing an audit schedule kno

38、ws the name of the client, contents of the audit schedule, period covered, who prepared the audit schedule, when it was prepared, and how it ties into the rest of the audit files with an index code.7-18 The two criteria used by auditors of public companies when determining whether memos, corresponde

39、nce, and other documents must be maintained in the audit files are as follows:1. The materials are created, sent, or received in connection with the audit or review.2. The materials contain conclusions, opinions, analyses, or financial data related to the audit or review.7-19The Sarbanes-Oxley Act o

40、f 2002 requires auditors of public companies to prepare and maintain audit schedules and other information related to any audit report in sufficient detail to support the auditors conclusions, for a period of not less than 7 years.7-20Audit schedules should include the following:Name of the client E

41、nables the auditor to identify the appropriate file to include the audit schedule in if it is removed from the files.Period covered Enables the auditor to identify the appropriate year to which an audit schedule for a client belongs if it is removed from the files.7-20 (continued)Description of the

42、contents A list of the contents enables the reviewer to determine whether all important parts of the audit schedule have been included. The contents description is also used as a means of identifying audit files in the same manner that a table of contents is used.Initials of the preparer Indicates w

43、ho prepared the audit schedule in case there are questions by the reviewer or someone who wants information from the files at a later date. It also clearly identifies who is responsible for preparing the audit documentation if the audit must be defended.Date of preparation Helps the reviewer to dete

44、rmine the sequence of the preparation of the audit schedules. It is also useful for the subsequent year in planning the sequence of preparing audit schedules.Indexing Helps in organizing and filing audit schedules. Indexing also facilitates in searching between related portions of the audit document

45、ation.7-21The permanent file contains data of an historical and continuing nature pertinent to the current audit. Examples of items included in the file are:1. Articles of incorporation2. Bylaws, bond indentures, and contracts3. Analysis of accounts that have continuing importance to the auditor4. I

46、nformation related to the understanding of internal control:a. flowchartsb. internal control questionnaires5. Results of previous years analytical procedures, such as various ratios and percentages compiled by the auditorsBy separating this information from the current years audit files, it becomes

47、easily accessible for the following years auditors to obtain permanent file data.7-22The purpose of an analysis is to show the activity in a general ledger account during the entire period under audit, tying together the beginning and ending balances. The trial balance includes the detailed make-up

48、of an ending balance. It differs from an analysis in that it includes only those items comprising the end of the period balance. A test of reasonableness schedule contains information that enables the auditor to evaluate whether a certain account balance appears to be misstated. One example of a tes

49、t of reasonableness schedule is a schedule that compares current year expenses to prior years amounts. This type of schedule is intended to show which accounts need investigation due to significant variances.7-23Unanswered questions and exceptions may indicate the potential for significant errors or

50、 fraud in the financial statements. These should be investigated and resolved to make sure that financial statements are fairly presented.7-23 (continued)The audit files can also be subpoenaed by courts as legal evidence. Unanswered questions and exceptions may indicate lack of due care by the audit

51、or.7-24Tick marks are symbols adjacent to information in audit schedules for the purpose of indicating the work performed by the auditor. An explanation of the tick mark must be included at the bottom of the audit schedule to indicate what was done and who did it.7-25Audit files are owned by the aud

52、itor. They can be used by the client if the auditor wants to release them after a careful consideration of whether there might be confidential information in them. The audit files can be subpoenaed by a court and thereby become the property of the court. They can be released to another CPA firm with

53、out the clients permission if they are being reviewed as a part of a voluntary peer review program under AICPA, state CPA society, or state Board of Accountancy authorization. The audit files can be sold or released to other users if the auditor obtains permission from the client.7-26It is a violati

54、on unless the CPA obtains permission from each client before the audit files for that client are released.7-27When evidence can be examined only in machine-readable form, auditors use computers to read and examine evidence. There are commercial audit software programs designed specifically for use b

55、y auditors, such as ACL Software and Interactive Data Extraction and Analysis (IDEA). Spreadsheet software packages can also be used by auditors to perform audit tests on data that is available only in machine-readable form.7-28The purposes of audit documentation software are to convert traditional

56、paper-based documentation into electronic files and to organize the audit documentation. The benefits of audit documentation software, such as Automated Client Engagement (ACE), are as follows: The auditor can more efficiently prepare a trial balance, lead schedules, supporting audit documentation,

57、financial statements, and ratio analysis using the computer rather than by hand. The effects of adjusting journal entries are automatically carried through to the trial balance and financial statements, making last-minute adjustments easier to make. Tick marks and review notes can be entered directly into computerized files. Data can be imported and exported to other applications. For example, a clients general ledger can be downloaded into ACE and tax information can be downloaded into a commercial