In order to test completeness, the procedure should start from the underlying documents and check to the entries in the relevant ledger to ensure none have been missed. To test for occurrence the procedures will go the other way and start with the entry in the ledger and check back to the supporting documentation to ensure the transaction actually happened. Accuracy — this means that there have been no errors while preparing documents or in posting transactions to ledgers.
The reference to disclosures being appropriately measured and described means that the figures and explanations are not misstated. Relevant test — reperformance of calculations on invoices, payroll, etc, and the review of control account reconciliations are designed to provide assurance about accuracy. Cut—off — that transactions are recorded in the correct accounting period.
Relevant test — recording last goods received notes and dispatch notes at the inventory count and tracing to purchase and sales invoices to ensure that goods received before the year end are recorded in purchases at the year end and that goods dispatched are recorded in sales.
Classification — that transactions are recorded in the appropriate accounts — for example, the purchase of raw materials has not been posted to repairs and maintenance. Relevant test — check purchase invoices postings to general ledger accounts. Presentation — this means that the descriptions and disclosures of transactions are relevant and easy to understand. There is a reference to transactions being appropriately aggregated or disaggregated. Aggregation is the adding together of individual items.
Disaggregation is the separation of an item, or an aggregated group of items, into component parts. The notes to the financial statements are often used to disaggregate totals shown in the statement of profit or loss.
Materiality needs to be considered when judgements are made about the level of aggregation and disaggregation. Relevant test — confirm that the total employee benefits expense is analysed in the notes to the financial statements under separate headings— ie wages and salaries, pension costs, social security contributions and taxes, etc. Existence — means that assets and liabilities really do exist and there has been no overstatement — for example, by the inclusion of fictitious receivables or inventory.
This assertion is very closely related to the occurrence assertion for transactions. Relevant tests — physical verification of non—current assets, circularisation of receivables, payables and the bank letter. Rights and obligations — means that the entity has a legal title or controls the rights to an asset or has an obligation to repay a liability.
Relevant tests — in the case of property, deeds of title can be reviewed. Current assets are often agreed to purchase invoices although these are primarily used to confirm cost. Long term liabilities such as loans can be agreed to the relevant loan agreement. Completeness — that there are no omissions and assets and liabilities that should be recorded and disclosed have been. In other words there has been no understatement of assets or liabilities. Relevant tests — A review of the repairs and expenditure account can sometimes identify items that should have been capitalised and have been omitted from non—current assets.
Accuracy, valuation and allocation — means that amounts at which assets, liabilities and equity interests are valued, recorded and disclosed are all appropriate. The reference to allocation refers to matters such as the inclusion of appropriate overhead amounts into inventory valuation.
Relevant tests — Vouching the cost of assets to purchase invoices and checking depreciation rates and calculations. External evidence is considered more reliable than internal evidence because external evidence has been in the hands of both the client and another party, implying agreement about the information and the conditions stated on the document.
Audit evidence is more reliable when it exists in documentary form, whether paper, electronic, or other medium for example, a contempo- raneously written record of a meeting is more reliable than a subse- quent oral representation of the matters discussed.
The reliability of evidence refers to the degree to which evidence is considered believable or trustworthy. One factor is the independence of the provider evidence obtained from a source outside the client company is more reliable than that obtained within. Relevance — must pertain to the audit objective being tested.
Effectiveness of client internal controls — good internal controls can mean better information. Auditor direct knowledge — auditor determinations are stronger that client comments. Qualifications — individual is a qualified source. The reliability of evidence depends on the nature and source of the evidence and the circumstances under which it is obtained. Evidence obtained directly by the auditor is more reliable than evidence obtained indirectly.
Examples of auditing evidence include bank accounts, management accounts, payrolls, bank statements, invoices, and receipts. Good auditing evidence should be sufficient, reliable, provided from an appropriate source, and relevant to the audit at hand.
Types of Audit Evidence 1 — Physical Examination. Physical examination is where the audit inspects the asset physically and counts them whenever required. Internal sources of audit evidence include a company's documented processes, policy documents, accounting records, invoices, system logs, and reports. External sources of audit evidence can include information from banks, debtors, suppliers, stock exchanges, and the Internal Revenue Service.
The following generalizations about the reliability of audit evidence are useful: Audit evidence is more reliable when it is obtained from knowledgeable independent sources outside the entity. Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles.
Arena and Azone said that factors affecting the internal audit effectiveness are characteristic of the audit team, activity and audit process, and the organization relationship. Mihret and Yismaw said that organization characteristic would increasing or decreasing the internal audit effectiveness. Audit evidence is evidence obtained by auditors during a financial audit and recorded in the audit working papers. Auditors need audit evidence to see if a company has the correct information considering their financial transactions so a C.
Certified Public Accountant can confirm their financial statements. Auditing is the process of examining an individual's financial statement and passing estimation on it. Whereas investigation is a comprehensive and careful study of the accounts books to find out the truth. The nature of auditing carries a general examination while the investigation has a critical nature. A material misstatement is information in the financial statements that is sufficiently incorrect that it may impact the economic decisions of someone relying on those statements.
To establish a level of materiality , auditors rely on rules of thumb and professional judgment. In addition, by following the FIAR guidance, Components are evaluating the effectiveness of their business processes and control environments to ensure these systems remain accurate. Having reliable, accurate data enables the Components to know what readiness assets are available, where these assets currently reside and their condition.
Existence and Completeness The Department of Defense DoD is committed to achieving its audit readiness goals while fulfilling its national security mission.
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