1. Which audit procedures should be used? 

   -audit procedure is a detailed instruction for the collection of a type of audit evidence.

-In general, the auditor will seek the most competent procedures that are also cost-feasible

2. What sample size should be selected?

3. What items should be selected for testing? The auditor will consider:

   -random/judgmental selection

   -materiality

   -results of prior audits

4. When should the procedures be performed?

-The auditor will consider procedures that should be performed before, on, or after the balance sheet date

-After these 4 decisions have been answered and the specific audit objectives have been identified, an audit program is constructed.

   -An audit program is a list of detailed audit procedures for each component or cycle specifying procedure timing, sample sizes, and selection methods

-evidence must pertain to specific audit objective

-Example: An auditor is concerned about the completeness of accounts payable (a/p).  

   -irrelevant because confirmation addresses existence. for completeness, a search is needed.

Appropriateness of evidence is determined by; reliability

-concerns the believability and trustworthiness of the evidence

-Reliability is determined by:

    -independence of the evidence provider  

    -effectiveness of client’s internal controls

    -auditor’s direct knowledge

    -qualifications of information provider

    -degree of objectivity

    -timeliness

-a measure of quantity. in general, the larger the sample size, the more persuasive the evidence.

-Auditors must balance for each audit test and component of the financial statement whether;

    -more evidence yields more assurance and higher audit costs

    -less evidence yields less assurance and lower audit costs

-In determining a sufficient sample size, an auditor will consider;

    -“representativeness”

    -materiality, large dollar amounts

    -items with high probability of misstatement

convincing evidence

   -which requires high audit cost

persuasive evidence 

   -which requires resonable audit costs

-inspection or count by the auditor of a tangible asset

-very competent evidence!

-receipt of a written or oral response from an independent third party at the auditor’s request

-very competent evidence!

-The confirmation process must be controlled by the auditor.

-Whenever reasonable, a sample of accounts receivable must be confirmed by the Auditor (SAS No. 67)

-auditor examination of client documents and records

-External documents

   -are usually on the client’s premises but were either prepared by a third party or processed by a third party (more persuasive).

-Internal documents

   -have been prepared by the client and have not left the client’s premises (less persuasive).

   -good internal controls= good internal documents

-using the senses to audit; often an informal procedure necessitating followup procedure

-useful but biased and not persuasive unless supported by another form of evidence

-rechecking a sample of Calculations made by the client

-checking the accuracy of client calculations and transfers of information (often performed by an audit software package)

-involve analysis of comparisons and interrelationships in data (may be performed by an audit software package)

-auditors records of;

    -procedures applied

    -test performed

    -information obtained

    -conclusions reached

-Their objective is to aid the auditor in providing reasonable assurance that an adequate audit was conducted in accordance with GAAS.

-Working papers also provide:

     -a basis for planning the audit

     -a record of the evidence accumulated and the results of tests

     -data supporting the audit report

     -a basis for supervisor/partner review

-contain data of a historical nature of continuing relevance to current and future engagements.

INCLUDE:

     -copies of client documents of continuing importance (ex) articles of incorporation, bylaws

     -analyses from prior audits that have continuing importance (ex) bonds, depeciation

     -internal control information (ex) flow charts

     -results of prior audit analytical procedure

NO.

-if they knew what the auditors were auditing they would be able to hide information.

-During the course of an audit,auditors obtain information of a confidential nature which is retained in the work papers.

-Rule 301 - Confidential Client Information A member in public practice shall not disclose any confidential client information without the specific consent of the client

-requires auditors of public companies to prepare and maintain audit working papers for a period of no less than 7 years

-audit evidence is increasingly in electronic form

-auditors must evaluate how electronic information affects their ability to gather evidence.

-auditors use computers to read and examine evidence.

-typically windows based softwae programs