Question

Identify and explain the 5 principal techniques for obtaining audit evidence available to the auditor. State 2 categories of misstatement and the misstatements they should capture. Explain the difference between walk-through test, tracing and vouching.

Answer 1

Here are some especially powerful pieces of audit evidence you can look for:

Uncontrolled documents. Look around for “bandit documents” posted on walls, machines, and desks. These are often informal specs or procedures that are not controlled in any way. Bandit documents often take the form of Post-It notes, marker settings written on machines, old memos, printed emails, and photocopies of external documents. If the document provides information on product requirements, process control guidelines, or decision making criteria, you need to inquire how the information is supposed to be controlled.

Product outside the normal flow. Look for large piles of product that appear to be outside the normal flow of production. These are often nonconforming products, moved to the side so they can be addressed. If you find nonconforming products, make sure they are being handled in accordance with the company’s process for controlling nonconforming products.

Measuring instruments. The presence of measuring instruments usually means that there are important characteristics that must be verified. When you see measuring instruments, you need to find out what they’re used for. If we’re using them to check product, verify service, or control a process, then the organization should have a process for ensuring the fitness of the instruments. These range from complex measurement devices to include very simple gauges (such as templates, patterns, jigs, rulers, tape measures, and limit samples), and everything in between.

Housekeeping and organization. It doesn’t take an expert to identify a mess. That’s really what you’re looking for. Problems with housekeeping and clutter are symptoms of larger issues. Delve deeper into these conditions and try to find out what is happening. Lack of housekeeping often points to issues with product preservation, defects, identification, and traceability.

Product identification. Look to see that all product has some sort of identification. Identification could be achieved through a variety of methods such as stickers, tags, bar codes, paint dabs, assigned location, special bins, boxes, or bags. If you’re not clear what the identification is, ask someone in the area.

2)....... Misstatements arising from fraudulent financial reporting

: these are intentional misstatements made to mislead, including omission of information from the financial statements and misapplication of accounting principles.

Misstatements arising from the misappropriation of assets

: such acts include theft, embezzlement, and any action that causes the company to expend cash for goods and services that do not benefit or provide value to the company.

3)These are both procedures used by Auditors when they issue an opinion on financial statements. Tracing looks at a source document and traces it through the accounting system to its place on the financial statement. Vouching goes the opposite direction. ... Vouching refers to when you vouch for someone