auditoria

Audit Evidence

Assess fairness of financial statements, measured based on the consequences for users of the financial statements.

Appropriateness of Evidence

Quality of evidence, which includes relevance and reliability.

Sufficiency of Evidence

Quantity of evidence needed, which depends on sample size and selection of items.

Relevance of Evidence

Evidence must address specific audit objectives.

Reliability of Evidence

Credibility of evidence based on factors such as independence of provider, effectiveness of controls, auditors' direct knowledge, qualifications of source, objectivity, and timeliness.

Physical Examination

Auditor inspects tangible assets to verify existence and condition; reliable but limited in ownership/valuation.

Confirmation

Third-party verification that is highly reliable but costly.

Inspection

Review of documents and records; external documents are more reliable than internal ones.

Analytical Procedures

Evaluate financial data using relationships to understand business, assess going concern, identify misstatements, and provide supporting evidence.

Inquiries of Client

Written or oral information from management that is useful but may be biased and requires corroboration.

Recalculation

Check mathematical accuracy.

Reperformance

Auditors repeat procedures or controls.

Observation

Watching processes being performed; useful for controls and inventory counts but has limited reliability.

Audit Data Analytics

Use of technology to analyze large datasets for pattern recognition and anomaly detection.

Robotics

Automate routine tasks.

Machine Learning

Detect patterns in data.

Sample Size

Number of items auditors choose to test, depending on internal controls and level of assurance needed.

Timing of Procedures

Audits cover a period, often a year; timing can be before, during, or after year-end.

Audit Program

Comprehensive list of audit procedures, including sample size, items to select, and timing.

Persuasiveness of Evidence

Evidence must convince that it is appropriate and has the quality of being relevant and credible.

Higher Misstatement Risk

Requires a larger sample size.

Audit Documentation

Purposes: Support Audit Opinion, Demonstrate compliance with standards, Facilitate supervision and review

Common Financial Ratios

Inventory turnover, Gross margin, Debt-to-equity ratio, Current Ratio

Audit Risk Basics

Auditors must obtain reasonable assurance; Financial statements are not guaranteed to be error-free; Risk exists at financial statement and assertion levels; Professional judgment is key

Risk Levels

Overall Financial Statement Level, Assertion Level, Inherent Risk, Control Risk

Risk Assessment Procedures

Inquiries of management and others, Analytical procedures, Observation and inspection, Discussion among engagement teams, Other procedures (prior audits, external sources)

Fraud Risk Considerations

Fraud harder to detect than error; Requires professional skepticism; Auditors must presume revenue recognition risks; Fraud risk is always a significant risk

Significant Risks

Non-routine transactions, Related party transactions, Areas requiring significant judgment, Always include fraud-related risk

Audit Risk Model

PDR = AAR / (IR × CR); Planned detection risk depends on acceptable audit risk, inherent risk, and control risk; Model guides amount of evidence to collect

Planned Detection Risk (PDR)

Risk that audits procedures fail to detect misstatement; Inverse relationship with audit evidence; Lower PDR → More evidence required

Inherent Risk

Susceptibility of an assertion to misstatement; High when complex estimates or unusual transactions exist; Independent of internal controls

Control Risk

Risk misstatements won't be prevented/detected by internal controls; High when controls are weak; Inverse relationship with detection risk

Acceptable Audit Risk

How much risk auditor is willing to accept; Lower AAR → more evidence, experienced staff, detailed review; Influenced by user reliance, financial difficulties, management integrity

Engagement Risk

Risk that auditor faces harm even if audit was correct; Includes bankruptcy, lawsuits, or regulatory action; Impacts acceptable audit risk decisions

Factors Affecting Inherent Risk

Nature of the business, results of prior audits, initial vs repeat engagements, related party transactions, complex or unusual transactions, level of management judgment required

Fraud and Asset Misappropriation

Fraudulent reporting risks, Misappropriation risks; Auditors must assess both; Fraud risk affects audit planning decisions

Risk and Evidence Relationship

High risk → More evidence; Low acceptable audit risk → More evidence; Strong controls → Less evidence; Professional skepticism required

Materiality and Risk

Materiality integrated into risk assessment; Misstatements evaluated for materiality and risk; Materiality not allocated to every audit objective

Fraud vs Error Risk

Fraud: Intentional, harder to detect, requires skepticism; Error: Unintentional, often procedural or system-based

Fraud Risk Indicators

Unusual transactions or revenue patterns, Weak internal controls, Related party transactions, Pressure to meet financial targets

Key Risk Factors for Audits

Business complexity and estimates, Management integrity and oversight, Industry and economic environment, Results of prior audits

Audit Response Actions

Assign experienced staff, Strengthen focus on fraud detection, Perform thorough reviews

Deep Learning

Process Large Data Sets

Audit Documentation Purposes

Support Audit Opinion, Demonstrate compliance with standards, Facilitate supervision and review

Technology in Audits

Transforming audits

Documentation

Ensures accountability

Definition of Fraud

Fraudulent financial reporting vs. Misappropriation of assets

Fraudulent Financial Reporting

Intentional misstatements, omissions, income smoothing, and earnings management.

Misappropriation of Assets

Employee theft, embezzlement, examples, and company losses.

The Fraud Triangle - Incentives/Pressures

Financial decline, bonuses, debt covenants, lifestyle needs.

The Fraud Triangle - Opportunities

Weak controls, Complex structures, Ineffective oversight, Technology misuse.

The Fraud Triangle - Attitudes/Rationalization

Management disregard, Ethical values, Executive superiority mindset.

Auditors' Responsibility

Professional skepticism, Questioning mind, Critical evaluation of evidence.

Sources of Fraud Risk Information

Team communications, Management inquiries, Analytical procedures, Other information.

Corporate Governance

Prevention, Deterrence, and detection of fraud risks.

COSO Fraud Risk Management - Principles

5 principles: Governance, Assessment, Control activities, Investigation, Monitoring.

Fraud Risk Governance

Program & ethical values.

Fraud Risk Assessment

Identify & evaluate schemes.

Fraud Control Activity

Preventive & detective controls.

Investigation & Corrective Action

Process for reporting & investigation.

Monitoring Activities

Ongoing evaluations & communication.

Culture of Honesty and Ethics

Tone at the top, workplace environment, whistleblowing, training.

Managements Roles

Identifying, Measuring, and Mitigating Fraud Risks.

Audit Committee Oversight

Board responsibility, Tone at the top, Monitoring internal controls.

Responses to Fraud Risk - Overall Responses

Engagement management, Experienced staff, Unpredictability in audits.

Responses to Fraud Risk - Assertion Level

Modifying audit nature, Timing, Extent of procedures.

Management Override

Journal entries testing, Bias in estimates, Unusual transactions.

Specific Fraud Risk Areas

Revenue, Receivables, Inventory, Accounts payable, Payroll, Fixed assets.

Revenue Fraud Risk

Fictitious revenue, Premature recognition, Adjustments manipulation.

Inventory Fraud Risk

Fictitious inventory, Manipulation, Turnover red flags.

Accounts Payable Fraud Risk

Understated liabilities, Fictitious vendors, Kickbacks.

Payroll and Expense Fraud

Ghost employees, falsified expenses, reimbursement fraud.

Detection and Interviews

Interview techniques, Fraud symptoms, Handling suspicions.

Fraud Detection Requires

Skepticism, Strong Governance, Auditor Vigilance.