Audit: Auditing and Appropriate Audit Evidence Essays

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CHAPTER 5: LECTURE NOTES
LEARNING OBJECTIVE 1: ACCOUNTING AND AUDITING CONTRASTED
SLIDE 1: ACCOUNTING AND AUDITING CONTRASTED * The financial report is the product of the entity’s accounting system and of judgement made by those charged with governance and management * ASA 200.3 / ISA 200.3 * Purpose of the audit is to enhance the degree of confidence of the intended users of the FR * To form a judgement on FR, auditor must look behind the FR to the data and allocations of the data * Therefore there is a close relationship between accounting and auditing * Lecturer * 3 parts to an audit * 1. Audit planning * Work out the risks * Work out what clients business is therefore ID risks / potential areas of concern * Formulate a plan based on the risks * 2. Execute the plan * Evidence gathering * Field work * Sufficient and appropriate evidence * Therefore evidence as a whole will support your conclusion / opinion * 3. Audit report * Issue an opinion / conclusion
SLIDE 2: ACCOUNTING AND AUDITING CONTRASTED

SLIDE 3: AREAS OF AUDIT INTEREST * ACCOUNTABLE ACTIVITY OF THE ENTITY * Collection of original accounting data * Allocations and reclassifications of the associated data * Presentation of results in the FR’s * ORGANISATION OF ENTITY * External relationships * Internal organisational structure – internal control * Lecturer * Collection of original = where transaction is originally posted from – i.e. sales invoices, contracts, supplier invoices – source of inform to prepare accounts * Allocations = depreciation, provisions – areas where judgement is involved

LEARNING OBJECTIVE 2: FINANCIAL REPORT ASSERTIONS AND AUDIT OBJECTIVES AND PROCEDURES
SLIDE 1: FR ASSERTIONS AND AUDIT OBJECTIVES AND PROCEDURES * Directors and managers make assertions (embodied in the FR) when they present a FR * Lecturer – critical part of course – assertions * An auditors job is to test those assertions whether they are correct or incorrect * Auditors use these assertions to assess risks by considering different types of potential misstatements that may occur and designing in response to risks * There are 3 categories of ASSERTIONS * 1. CLASSES OF TRANSACTIONS – SOCI * 2. ACCOUNT BALANCES – B/S * 3. PRESENTATION AND DISCLOSURE – notes
SLIDE 2: FR ASSERTIONS – ASSERTIONS ABOUT TRANSACTION AND EVENTS * Assertions about classes of transactions and events for the period * OCCURRENCE * Transactions and events that have been recorded have occurred and pertain to the entity * I.E. IS THE TRANSACTION REAL OR FICTIOUS * COMPLETENESS * All transactions and events should have been recorded * All transactions are recorded – ensure that all expenses are in there – make sure nothing is omitted * ACCURACY * Amounts and other data relating to recorded transactions and events have been recorded appropriately * Legitimate transactions processed but amounts may be incorrect * CUT-OFF * Transactions and events have been recorded in the correct accounting period * Correct period * Different to completeness because it is recorded by in wrong period * Example: brought forward sales – all transactions are included but a few more in June rather than July * Or deferred expenses to the next period * CLASSIFICATION * Transactions and events have been recorded in the proper accounts * Probably more B/S – CL or NCL – to make liquidity look better * Misclassification – R&M expense but classified as asset (capitalised)
SLIDE 3: FR ASSERTIONS – ACCOUNT BALANCES * IN EXAM MUST UNDERSTAND THESE * Assertions about account balances at the period end *
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