AUDIT EVIDENCE GROUP 8

 


GROUP 8

1. LOW SHI YING 10DAT19F1040

2. LEE PEI YING 10DAT19F1017

3. NUR ANIS ASFA BINTI JOHARI 10DAT19F1008

4. FITRI NUR ATIRAH BINTI ROSLI 10DAT19F1019


INTRODUCTION

Audit evidence refers to information or data use or collects by auditors as part of their audit works so that they could conclude their opinion on whether or not financial statements are prepared in all material respect and accordance with the applicable financial reporting frameworks.

Audit evidence is obtained by the auditor throughout all of the audit stages, including the planning stage, execution stage, and conclusion stages. And to gather this evidence, the auditors use many different technologies and procedures suitable for them.


QUESTION 1

Describe how the auditor verifies the accuracy of the aged trial balance.

ANSWER:

The auditor verifies the accuracy of the aged trial balance using the following steps:

  • A copy of the aged trial balance of accounts receivable is obtained from the client.
  • Compared the total balance to the accounts receivable general ledger balance.
  • Select a sample customer account to include in the trial balance correctly. 
  • For each selected customer account, the auditor traces the customer ' s balance back to the subsidiary ledger detail. 
  • Verifies the total amount and the amounts included in each column for proper aging.
All these steps explain the manual approach to testing accuracy. Step 3 to 5 will involve the use of computer-helped audit techniques.



QUESTION 2

List and discuss the three factors that may effect the reliability of confirmation of accounts receivable.

ANSWER:

Three factors that affect the reliability of accounts receivable confirmations are:
  • The type of confirmation request. 
  • Prior experience on the client or similar engagements. 
  • The intended respondent.

Positive confirmations 
  • considered more reliable the recipient is required to respond to the auditor regardless of whether a misstatement exists or not. 
  • are used when an account contains large individual balances or if errors are anticipated because control risk is assessed to be high. 
A positive accounts receivable confirmation requests that the customer indicate whether or not it is in agreement with the amount due.


Negative confirmation
  • are used when there are large number of accounts with small balances, control risk is low, and the auditor believes that the customers will devote adequate attention to the confirmation.

Prior experience 
  • the entity in terms of confirmation response rates, misstatements identified, and the accuracy of returned confirmations should be considered when assessing the reliability of accounts. 

Response 
  • required regardless of whether the customer believes that the amount is correct or incorrect.



QUESTION 3

Identify three other types of receivables the auditor should examine. What audit procedures would typically be used to audit other receivables?


ANSWER:

Types of receivables that the auditor should examine include: 
  • Receivables from officers and employees. 
  • Receivables from related parties. 
  • Notes receivable

The auditor would confirm and evaluate each type of receivable for collectability. The transactions that result in receivables from related parties are examined to determine if they were at " arm ' s length." Notes receivable would also be confirmed and examined for repayment terms and whether interest income has been properly recognized.


What audit procedures would typically be used to audit other receivables?
  • Trace receivable report to general ledger. The auditors will ask for a period-end accounts receivable aging report, from which they trace the grand total to the amount in the accounts receivable account in the general ledger. (If these totals do not match, you may have a journal entry somewhere in the general ledger account that should not be there) 
  • Calculate the receivable report total. The auditors will add up the invoices on the accounts receivable aging report to verify that the total they traced to the general ledger is correct.
  • Investigate reconciling items. If you have journal entries in the accounts receivable account in the general ledger, the auditors will likely want to review the justification for the larger amounts. This means that these journal entries should be fully documented.
  • Test invoices listed in receivable report. The auditors will select some invoices from the accounts receivable aging report and compare them to supporting documentation to see if they were billed in the correct amounts, to the correct customers, and on the correct dates.


CONCLUSION

In the conclusion and opinion formulation stage, audit evidence is information that the auditor is to consider whether the financial statements as a whole presents with completeness, validity, accuracy and consistency with the auditor's understanding of the entity.



REFERENCES
  • https://www.accountingtools.com/articles/2017/5/15/accounts-receivable-auditing
  • https://www.wikiaccounting.com/audit-evidences-definition-types-procedures-quality/
  • https://quizlet.com/44224134/chapter-10-auditing-the-revenue-process-flash-cards/
  • https://www.ifac.org/system/files/downlo


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