Auditing and Assurance Services – 读书笔记

Management Assertions

  1. Existence or occurence
    Assets or liabilities exist at a given date, and recorded transactions have occurred during the period
  2. Completeness
    All transactions and accounts that should be presented in the financial statements are so included.
  3. Valuation or allocation
    Assets, liabilities, equity, etc have been included in the financial statements at appropriate amounts.
  4. Rights and obligations
    The public company holds or controls rights to the assets, and liabilities are obligations of the company at a given date.
  5. Presentation and disclosure
    The components of the financial statements are properly classified, described and disclosed.

Persuasiveness of Evidence

  1. Appropriateness
Relevance of Evidence
Reliability of Evidence

(1) Independence of provider
(2) Effectiveness of client's internal control
(3) Auditor's direct knowledge
(4) Qualification of individuals providing the information
(5) Degree of objectivity
(6) Timelineness

  1. Sufficiency
    The quantity of evidence obtained in an audit determines the sufficiency evidence.

Types of Audit Evidence

  1. Confirmation
    Confirmation describes the receipt of a direct written respnose from a third party verifying the accuracy of information that was requested by the auditor.

  2. Inspection
    Inspection is the auditor's examination of the client's documents and records to substantiate the information that is, or should be, included in the financial statements.

  3. Analytical Procedures
    Analytical procedures are defined by auditing standards as evaluations of financial information through analysis of plausible relationships among financial and nonfinancial data.

  4. Inquiry
    Inquiry is the obtaining of written or oral information from the client in response to questions from the auditor.

  5. Recalculation
    Recalculation involves rechecking a sample of calculations made by the client.

  6. Reperformance
    Reperformance is the auditor's independent tests of client accounting procedures or controls that were originally done as part of the entity's accounting and internal control system.

  7. Observation
    Observation consists of looking at a process or procedure being performed by others.

  8. Three Risk Terms in Audit Planning
    1) Client Business Risk
    2) Acceptable Audit Risk
    Audit Risk is the risk taken of giving audit opinion that doesnot reflect the financial position of client based on certain amount of audit evidence.
    Audit risk is only correlated with the sufficiency of audit evidence.
    More audit evidence results in a lower audit risk
    3) The Risk of Material Misstatement

  9. Considerations on Accepting a New Client
    1) The new auditor is required by auditing standards to communicate with the predecessor auditor.

  10. Materiality in Financial Audit
    The magnitude of misstatement that individually, or when aggregated with other misstatements, could reasonably be expected to influence the economic decision made by users of the financial statements.

  11. The need for the allocation of preliminary judgement of materiality
    This is also call the determination of performance materiality.
    Some accounts are likely to be overstated, whereas others are likely to be understated, resulting in a net amount that is likely to be less than the prelimary judgement.

The aim of determine performance materiality is to minimize audit costs without sacrificing audit quality.

  1. The Procedure of Assessment of the Risk of Material Misstatement.

1). Inquiries of Management and Others Within the Entity
2). Analytical Procedures
3). Observation and Inspection
4). Discussion among engagement team members
5). Other Risk Assessment Procedures

  1. Risk of Material Misstatement

1) PDR: Planed detection risk (planned detection probability)
2) AAR: Acceptable audit risk
3) IR: Inherent Risk
4) CR: Control Risk

PDR = AAR/(IR*CR)