Week 4 Scenario Assignment
Week 4 Scenario Assignment
The following is a guide that describes Audit Evidence and Documentation standards. The guide or cheat sheet includes; comparisons, sample sizes and methods, relevance, reliability, sufficiency, types of audit evidence, purpose, ownership, confidentiality, and retention of documentation.
Comparison of Audit, Scientific and Legal Evidence Standards
Evidence is used to determine if the information reported is accurate when compared to the criteria and establish the conclusion of an audit. Legal and scientific evidence is the same as any evidence pertaining to law or science. Lawyers use evidence to determine an innocence or guilt of a defendant, along with the communication or testimonies of others. Scientists use evidence to prove a hypothesis or theory by performing experiments and tests. Without evidence, it is impossible to provide accurate findings. Pertaining to financial information, evidence provides proof an audit is completed fairly and accurately with a high level of assurance.
Sample Sizes and Methods
Audit sampling is very much needed and required amongst auditors. Sampling allows the opportunity for a certain amount of evidence needed to form a valid conclusion. In order to reduce the vast risk of error or over investigating; audit sampling allows for a more effective review. There are many different methods of sampling that are recognized by ISA 530. The five main methods are (ACCA, 2019):
Random – This method of sampling ensures that all items within a population stand an equal chance of selection by the use of random number tables or random number generators. The sampling units could be physical items, such as sales invoices or monetary units.
Systematic – The method divides the number of sampling units within a population into the sample size to generate a sampling interval.
Monetary Unit Sampling – The method of sampling is a value-weighted selection whereby sample size, selection and evaluation will result in a conclusion in monetary amounts.
Haphazard – When the auditor uses this method of sampling, he does so without following a structured technique. ISA 530 also recognizes that this method of sampling is not appropriate when using statistical sampling
Block – This method of sampling involves selecting a block (or blocks) of contiguous items from within a population.
Relevance, Reliability, and Sufficiency of Evidence
Relevance – Relevance refers to the relationship between the specific audit objective being tested and the evidence being reviewed. What is relevant for one audit objective may not be for another.
Reliability – Reliability refers to the degree to which presented evidence and information is trustworthy or believable. There are six characteristics that reliability depends on:
Independence of the provider.
Client’s internal control effectiveness.
Direct knowledge by the auditor.
Individuals qualifications to provide the information.
Degree of objectivity.
Timeliness (Arens, Elder, & Beasley, 2014).
Sufficiency – Sufficiency is determined by the quantity of evidence that is obtained. The risk of material misstatement and quality of evidence affects the judgements about sufficiency.
Types of Audit Evidence
As the basis of information from which the audit opinion is formed, selecting which type of audit evidence is needed assists in determining the audit procedures to utilize. Auditors categorize evidence by eight types and audit procedures are designed to obtain one or more these evidence types: physical examination, confirmation, inspection, analytical procedures, inquiries of the client, recalculation, reperformance, and observations. (Arens, Elder & Beasley, 2014) Determining the appropriate types of evidence to accumulate is primarily based on the specific characteristics of the evidence, with emphasis on relevance, reliability, timeliness, and costs. There exists a direct relationship between the types of audit evidence and the four audit decisions, as application of the four audit decisions, assists auditors in qualifying the characteristics of the type of evidence needed to conduct the audit to the best of its objective. (Arens, Elder & Beasley, 2014)
Purpose, Ownership, Confidentiality and Retention of Documentation
Purpose: The reason for documentation is to hold data given amid reviews to frame a feeling on the exactness of the customer’s budget reports just as to keep up records for record keeping and legitimate maintenance for potential future employments.
Ownership: “Review documentation arranged amid the commitment, including plans arranged by the customer for the examiner, is the property of the evaluator” (Arens, Senior, and Beasley, 2014, pg. 189), except if subpoenaed by the court for lawful proof.
Confidentiality: Keeping up and keeping records secret between the customer and examiner. As per Rule 301 of the Code of Professional Conduct, “forbids a part in open practice from uncovering any private customer data without the particular assent of the customer” (2013, E§301.04).
Retention of Documentation: All review documents acquired amid reviews of a privately-owned business is to be held for a time of five years. Moreover, review records got amid reviews of open organizations are to be held for a time of seven.
ACCA. (2019). Audit Sampling. Retrieved from https://www.accaglobal.com/vn/en/student/exam-support-resources/fundamentals-exams-study-resources/f8/technical-articles/audit-sampling.html
Arens, A.A., Elder, R.J., & Beasley, M.S. (2014). Auditing and Assurance Services: An Integrated Approach (15th ed.). Retrieved from The University of Phoenix eBook Collection database.