Question

Prepare a "Cheat Sheet" that briefly describes Audit Evidence and Documentation Standards, which includes the following topics. Each topic should be 90 to 175 words: •Comparison of Audit, Scientific and Legal Evidence Standards. JEN •Consideration of Sample Sizes and Methods (random, haphazard, monetary unit sample, judgmental) and how sampling affects evidence. •Relevance, Reliability and Sufficiency of Evidence. •Brief statement on the 80 types of audit evidence (physical examination, observation, confirmations, inquiry, recalculation, etc.). •Purpose, Ownership, Confidentiality and Retention of Documentation.

Answer 1

Answers

•Comparison of Audit, Scientific and Legal Evidence Standards. JEN

Audit Evidence is evidence based on certain assumptions, documents, law , principles and standard.

Scientific evidence is obtained on the basis of scientific reasons and testing on the basis of some formula

•Consideration of Sample Sizes and Methods (random, haphazard, monetary unit sample, judgmental) and how sampling affects evidence.

ISA 530 deals with Audit sampling. The standard briefly means that the auditor will not test all the 100% of information available with him or her but instead take the sample from the population on the basis of various method available and test the same for the audit conclusion. Consideration of sample size are :

1) Select the relevant sample size : the lesser the sample size , more will be the risk of misstatement to audit conclusion

2) It should be significant or important : Significance is the idea that the results are not due to random chance alone.

Methods to sampling are explained as under

Random Sampling : Under this method of sampling , all items in a population get equal chance of selection

Haphazard Sampling: Under this method of sampling, auditors chose the sample without following any systematic method of selection from the population

Monetary unit Method: Here the sample size selection and evaluation of it will result into a monetary amount

Judgemental sampling : Here the auditor select the sample based on his research, knowledge and professional judgement

How sampling affects evidence

Selection of sample is a difficult and a judgemental work which will vary from person to person and hence the audit evidence is also different. Also there are chances that due to wrong selection of sampling method important data from the population is omitted

•Relevance, Reliability and Sufficiency of Evidence.

The result of the above three elements (i.e. . Relevance, reliability and sufficiency of audit evidence) purely depend on the population of the data , Method of sampling followed by the auditor, sample size. Bigger the sample size , more reliable will be the audit evidence obtained. To be appropriate, audit evidence must be both relevant and reliable in providing support for the conclusions of auditors opinion

•Brief statement on the 80 types of audit evidence (physical examination, observation, confirmations, inquiry, recalculation, etc.).

The various types of audit evidences are as under :

Physical examination : It means auditor will physically examine the inventory , fixed assets as per the books record and as per its actual availability

Observation : It means the auditor will look at the process followed by the company or entity

Inquiry : It means auditor will obtain knowledge and information from the people involved in the company

Recalculations : Recalculation consists of checking the mathematical accuracy of documents or records. Recalculation may be performed manually or electronically.

Reperformance : It means independent execution of procedures or controls that were originally performed by company personnel.

•Purpose, Ownership, Confidentiality and Retention of Documentation.

Purpose of documentation : It act as a supporting documents towards the auditor finding and work done. Also it help to traced the past events and documents to newly entered staff

Ownership, Confidentiality and Retention of Documentation.

The auditor has an ethical and a legal, obligation to maintain the confidentiality of client information because audit documentation often contains confidential client information, the auditor should adopt reasonable procedures to maintain the confidentiality of that information . The auditors system should have reasoable security to prevent unauthorised acess of client information. Audit documents should be preserved for seven years from the end of financial year