The four audit evidence decisions involve deciding which type of evidence to collect, how much evidence to collect, when to collect the evidence, and where to collect the evidence.
When determining which type of evidence to collect, the auditor must consider the quality and reliability of the evidence. This means the auditor should collect reliable evidence that is relevant to the financial statement assertions and has minimal bias.
The auditor will then need to decide how much evidence to collect. The amount of evidence needed depends on the risk associated with the financial statement assertion. More evidence will be needed if the risk is higher.
Once the type and amount of evidence are determined, the auditor will then decide when to collect the evidence. The auditor will want to collect evidence that is timely. This means evidence that is up to date, relevant, and casts light on the financial statement assertions being tested.
The last decision is where to collect the evidence. This could be from within the organization, from outside sources such as third parties, or both. This decision should be based on the risk and available evidence.
Ultimately, the auditor wants to collect evidence from a reliable source that can show that the financial statement assertions have been satisfied.
Table of Contents
What are the 4 characteristics of evidence?
The four characteristics of evidence are relevance, materiality, sufficiency, and competency.
Relevance refers to whether the evidence is related to the facts at issue or can be logically or legally connected to the case. It is assessed based on the relevancy of the nature of the evidence, issues involved and its probative value.
Materiality refers to the importance of facts and evidence for issue of contention in the trial or inquiry. It is evaluated based on the weight, soundness, and sufficiency of the evidence.
Sufficiency denotes the ability of evidence to support the fact at issue and withstand legal tests. It is the quality of being uncorroborated.
Competency concerns the admissibility of evidence by the court. It is evaluated on the basis of legality, relevancy, and reliability of the evidence.
Which is the 4 steps in accepting an audit engagement?
Accepting an audit engagement involves four steps.
1. Understanding the Engagement: In this step, the auditor needs to understand the nature of the audit engagement, the purpose, and objective of the engagement, the relevant accounting and auditing standards related to the engagement, and the client’s business risks.
2. Initial Engagement Planning: During this step, the auditor needs to decide on the audit approach and the audit plan, determine the audit team, and analyze the client’s internal control environment.
3. Analyzing the Engagement Terms: In this step, the auditor needs to evaluate the engagement terms and fees, analyze the planned extent of contacts with the client and other parties, and analyze the risks associated with the engagement, especially if the engagement is a significant one.
4. Communicating with Management & the Board: During this step, the auditor needs to communicate his or her acceptance or refusal of the audit engagement with the client’s management and board, assess the independence of the audit team, and explain the audit approach and any important details such as the audit timeline and the audit fees.
The auditor also needs to confirm the acceptance of the audit engagement agreement with the client and provide the client with a copy of the engagement letter.
What are the four principles of auditing?
The four principles of auditing are:
1. Professionalism/Competency – Auditors must comply with professional standards and have the necessary credentials and competency required to perform the audit. A professional auditor must be independent, objective, and ethical in their approach, and must have the appropriate technical knowledge and experience.
2. Proper Planning – Auditors should undertake comprehensive planning before conducting the audit. The planning phase allows the auditor to develop a detailed strategy and timeline for the audit and identify the tasks, resources, personnel, and tools necessary for successful completion.
3. Reporting – Auditors must create timely and meaningful reports that include a detailed explanation of the audit findings. The report should provide clear evidence that the auditor adhered to professional standards, had all the necessary qualifications and expertise required, and reached valid conclusions and recommendations.
4. Documentation – Auditors should back up all of their work with extensive documentation and supporting evidence. This allows them to produce proof that the audit was conducted with integrity, and that their analysis and conclusions were reliable.
It also supports their client’s understanding of the audit process and their ability to evaluate the results.
What is a Stage 4 safety audit?
A Stage 4 safety audit is a comprehensive evaluation of all aspects of a company’s safety and health management systems. It is designed to identify any gaps or weaknesses in the existing systems and processes and to recommend solutions or corrective actions to achieve a safer and healthier workplace.
The audit typically involves an in-depth examination of the company’s policies, procedures, and practices, as well as its physical infrastructure and the means by which employees are trained, instructed, and motivated to follow safety procedures and practice safe behaviors.
Depending on the organization, the audit could involve such components as a review of all relevant safety documentation, interviews with workers, observation of safety and health practices in the workplace, and a review of any relevant reports and records.
The results of the audit provide a comprehensive evaluation of the company’s safety and health standards and suggest opportunities for improvement.
What are the 4 general areas to check during a safety audit?
Safety audits are an important part of ensuring workplace safety for employees. They involve assessing the physical, environmental, and organizational aspects of a workplace to identify potential hazards.
The four general areas to check during a safety audit are as follows:
1. Physical elements: This involves assessing the physical aspects of the workplace environment and assessing the presence of any potential hazards, such as broken stairs, exposed electrical wires, or unsafe equipment.
2. Environmental elements: These include assessing any conditions that could be a risk to the safety and health of employees, such as air quality, ventilation, noise, and temperature levels.
3. Equipment elements: This refers to the checking of any tools or equipment in use, such as tools and machinery, to ensure that these are working correctly and are safe to use.
4. Organizational elements: This involves assessing the effectiveness of workplace safety programs, policies, and procedures to make sure these are regularly reviewed, followed, and updated. An audit needs to assess the administrative processes that are in place, the training provided to employees in terms of safety, and the monitoring of potential hazards.
What are five procedures An auditor should perform in determining whether to accept a client?
1. Perform pre-engagement activities: Conducting an audit requires the auditor to gain an understanding of the client and the client’s business. Pre-engagement activities are everything that the auditor does before accepting the audit engagement.
This includes a review of the client’s financial statements and procedures, verification of the validity of their business licenses, and confirmation that the auditing firm is not already performing an audit for a competitor.
2. Perform a risk assessment: The auditor should assess the client’s risk level to determine whether they have the necessary capabilities and internal controls to properly execute the audit. This assessment helps the auditor determine if the client can provide accurate financial information and is a reliable source of information.
3. Evaluate the independence of the audit firm: The audit firm should be independent, meaning they have no interest in the success of the client or its business. This helps ensure that the audit is unbiased and that the opinions issued are honest and correct.
4. Review the audit standards: Auditing standards help guide the audit process, ensuring that all aspects of the account are properly tested and that the audit is conducted with the highest possible level of expertise.
The auditor must review and understand these standards to ensure that the client’s audit is conducted according to industry best practices.
5. Select the audit methodology: The auditing firm must select the audit methodology that is most appropriate for the client. This decision is based on the client’s risk level as well as the type of findings that the auditing firm expects to uncover.
The audit methodology should be tailored to provide the most comprehensive and reliable results.
What factors should an auditor consider before accepting a company as an audit client?
An auditor should consider a variety of factors before accepting a company as an audit client. First, the auditor should consider the size and complexity of the company in order to determine the extent of the audit services needed.
The auditor should also consider any business relationships the company has with other companies or entities such as investors, lenders, or regulatory agencies. The auditor should also review the company’s financial reporting procedures and internal control systems.
This will help the auditor assess the company’s ability to produce reliable and accurate financial information. Additionally, the auditor should research the background of the company’s key management, review its legal structure, and assess its risk profile.
The auditor should also make sure the type of audit proposed is appropriate for the company. For example, a public company would need a more rigorous audit than a private company. The auditor should also confirm the company’s readiness to meet any deadlines associated with the audit, as well as its ability to provide timely and relevant information throughout the audit process.
Furthermore, the auditor should make sure the company has adequate resources to meet the requirements of the audit and that it has professional indemnity insurance.
Finally, the auditor should be confident that necessary independence requirements can be met and that the audit firm and its personnel do not have any conflicts of interest. This is to ensure that the auditor is objective when performing audit activities and is not influenced by any other interests.
What are the four types of evidence auditors use to obtain an understanding of the client’s internal controls?
The four types of evidence auditors use to obtain an understanding of the client’s internal controls are: inquiring, observing, reperforming, and analytical procedures.
Inquiring entails asking management and their staff about controls, seeking relevant procedures and policies, and inquiring about the experiences of control personnel.
Observation allows the auditor to see firsthand what people are doing and how they are interacting with the environment in which the controls are functioning. It helps in verifying that the appropriate policies, procedures, and documents exist as well as verifying the proper implementation of the client’s internal controls.
Reperforming sometimes referred to as testing, comes into play when the auditor performs a control that the client has been responsible for performing. This is used to provide assurance that the control is operating as claimed.
Analytical procedures involve the analysis of financial information to develop expectations about results. This is used to identify trends or unusual events, make comparisons between different accounting periods and of related items, and determine the reasonableness of information.
It is also used to assess the impact of significant events on the system’s financials and its performance.
How would you document your understanding of internal control?
Documenting my understanding of internal control would involve several steps. First, I would research the basics of internal control and become familiar with the processes, procedures, and regulations that govern the effective management of internal control.
Second, I would identify key internal control policies, such as those that relate to cash management, inventory management, permission systems, and operational processes. Third, I would evaluate my current internal control system to determine any weaknesses or gaps, and then formulate an action plan to address any deficiencies.
Finally, I would document my understanding of internal control through written reports and flowcharts to explain the structure, system, and operations of the internal control system. In addition, I would develop methods to measure the effectiveness of internal control and present the findings to senior management.
How the auditor understand the client’s internal control?
For an auditor to understand a client’s internal control, the auditor should first understand the overall objectives of the organization – the reason for its existence, how it achieves those objectives, and its operations.
They use this to understand the roles, responsibilities, and processes used within the organization. The auditor then evaluates the internal control system, which includes the policies and procedures that are used to help the organization reach their objectives and protect their assets.
The auditor looks at both manual and automated controls to determine whether they are functioning properly, if they are monitored regularly, and if any potential risks have been identified.
The auditor reviews the organization’s operations, records, and information systems to identify potential sources of risk and to determine whether controls are in place to protect the organization’s assets.
They analyze the information to assess the adequacy and effectiveness of the internal controls to ensure that they are operating as designed. They do this by looking at the activities of the organization, the documentation, and the systems in place that safeguard against errors and fraud.
The auditor also evaluates the client’s internal control environment. This includes the extent to which management is involved in the oversight of the internal control system and their commitment to the control process.
It is essential for the auditor to have a basic understanding of the control environment, so they can effectively assess the risk of material misstatements and design audit tests.
The auditor should also review the internal control activities that are being performed. This may involve evaluating the reliability of any manual data entry processes, as well as routinely monitoring computer controls that have been implemented.
They may also review reports of the activities of the internal control system to determine if any corrective action is needed.
Overall, it is the auditor’s responsibility to understand the client’s internal control in order to evaluate the risk of material misstatements and design effective audit tests. The auditor must also determine if the internal controls are adequate and operating effectively, and assess the organization’s control environment to ensure that proper controls are in place to protect the organization’s assets.
What are the audit methods that can be used by internal auditor?
Internal auditors have a wide range of audit methods available to them in order to effectively and accurately assess the effectiveness of a business’s processes and compliance with internal policies.
Common methods used by internal auditors include:
1. Risk-Based Auditing: This audit approach evaluates existing processes, measures, and control structures related to organizational risks to ensure they are operating as designed with an emphasis on accuracy and compliance.
2. Quality Management Auditing: This approach is focused on evaluating the efficiency and effectiveness of a business’s quality management policies and procedures. It helps to ensure that the quality of products, services, and processes are meeting expectations.
3. Documentation Reviews: Internal auditors can review existing documents and procedures to assess their accuracy and compliance, as well as look for any potential changes that could be made to improve processes.
4. Financial Auditing: This audit approach evaluates financial records, such as budgets and forecasts, to ensure they are correct and company policies are being followed.
5. Compliance Auditing: Compliance auditing involves evaluating processes and procedures to ensure they are in accordance with external regulations, standards, and laws.
6. Waste and Fraud Auditing: This approach looks for any wasteful or fraudulent activities that may be costing the company money or resources.
7. Operational Auditing: This audits assess existing operational processes, procedures, and systems to ensure they are operating effectively and any necessary changes or improvements can be identified and implemented.
Regardless of the approach used, internal auditors are expected to look for and reveal any potential issues and provide recommendations for improvement. Internal auditors are also expected to maintain the confidentiality of their auditing activities and ensure their audit findings and reports remain secure.