Match each of the 8 different types of independent Audit Evidence Discussed by t
ID: 2448803 • Letter: M
Question
Match each of the 8 different types of independent Audit Evidence Discussed by the Arens Auditing Text with the best practical example described below:
8 TYPES OF EVIDENCE
1 Physical Examination 5. Inquiries of Client
2 Confirmation 6. Recalculation
3 Inspection 7. Re-performance
4 Analytical procedures 8. Observation
PRACTICAL EXAMPLES OF EVIDENCE
Example (1) The auditor selects a sample of customer orders processed during the year and examines each to determine whether the client’s credit extension policy was properly applied.
Example (2) The auditor selects a sample of sales invoices processed by the client during the year and verifies that each was correctly totaled ( i.e., footed) by the client.
Example (3) The auditor calculates the client’s inventory turnover for the current year undergoing audit and compares it the turnovers calculated for the previous five years.
Example (4) The auditor obtains the client’s permission to correspond (i.e., by mail) with a sample of the client’s customers about the accuracy and legitimacy of their year-end accounts receivable balance due to the client.
Example (5) The auditor selects a sample of items entered into accounts payable during the year and then inspects the clients cancelled checks for these items to determine that they were accurately valued and legitimately paid for.
Example (6) The auditor conducts a surprise inspection of manufacturing employees arriving for work and “clocking in” to determine that the client’s internal controls related to “time keeping” are functioning properly.
Example (7) The auditor interviews the client’s CEO to determine if he/she is aware of, or suspects that fraudulent acts may have been committed by subordinates during the period covered by the audit.
Example (8) Five representatives of the independent audit firm are present to observe the taking of the client’s annual physical inventory. The 5 audit representatives verify a sample of the physical inventory counts conducted by client’s employees and tour the client’s plant site to determine that the physical inventory is complete.
Explanation / Answer
Example Types of Audit Evidence Example (1) The auditor selects a sample of customer orders processed during the year and examines each to determine whether the client’s credit extension policy was properly applied. 3 Inspection Example (2) The auditor selects a sample of sales invoices processed by the client during the year and verifies that each was correctly totaled ( i.e., footed) by the client. 6. Recalculation Example (3) The auditor calculates the client’s inventory turnover for the current year undergoing audit and compares it the turnovers calculated for the previous five years. 4 Analytical procedures Example (4) The auditor obtains the client’s permission to correspond (i.e., by mail) with a sample of the client’s customers about the accuracy and legitimacy of their year-end accounts receivable balance due to the client. 2 Confirmation Example (5) The auditor selects a sample of items entered into accounts payable during the year and then inspects the clients cancelled checks for these items to determine that they were accurately valued and legitimately paid for. 7. Re-performance Example (6) The auditor conducts a surprise inspection of manufacturing employees arriving for work and “clocking in” to determine that the client’s internal controls related to “time keeping” are functioning properly. 8. Observation Example (7) The auditor interviews the client’s CEO to determine if he/she is aware of, or suspects that fraudulent acts may have been committed by subordinates during the period covered by the audit. 5. Inquiries of Client Example (8) Five representatives of the independent audit firm are present to observe the taking of the client’s annual physical inventory. The 5 audit representatives verify a sample of the physical inventory counts conducted by client’s employees and tour the client’s plant site to determine that the physical inventory is complete. 1 Physical Examination