About Me
CPA
1 Regulation (REG)
1.1 Ethics, Professional Responsibilities, and Federal Tax Procedures
1.1 1 Professional ethics and responsibilities
1.1 2 Federal tax procedures and practices
1.1 3 Circular 230
1.2 Business Law
1.2 1 Legal rights, duties, and liabilities of entities
1.2 2 Contracts and sales
1.2 3 Property and bailments
1.2 4 Agency and employment
1.2 5 Business organizations
1.2 6 Bankruptcy
1.2 7 Secured transactions
1.3 Federal Taxation of Property Transactions
1.3 1 Basis determination and adjustments
1.3 2 Gains and losses from property transactions
1.3 3 Like-kind exchanges
1.3 4 Depreciation, amortization, and depletion
1.3 5 Installment sales
1.3 6 Capital gains and losses
1.3 7 Nontaxable exchanges
1.4 Federal Taxation of Individuals
1.4 1 Gross income inclusions and exclusions
1.4 2 Adjustments to income
1.4 3 Itemized deductions and standard deduction
1.4 4 Personal and dependency exemptions
1.4 5 Tax credits
1.4 6 Taxation of individuals with multiple jobs
1.4 7 Taxation of nonresident aliens
1.4 8 Alternative minimum tax
1.5 Federal Taxation of Entities
1.5 1 Taxation of C corporations
1.5 2 Taxation of S corporations
1.5 3 Taxation of partnerships
1.5 4 Taxation of trusts and estates
1.5 5 Taxation of international transactions
2 Financial Accounting and Reporting (FAR)
2.1 Conceptual Framework, Standard-Setting, and Financial Reporting
2.1 1 Financial reporting framework
2.1 2 Financial statement elements
2.1 3 Financial statement presentation
2.1 4 Accounting standards and standard-setting
2.2 Select Financial Statement Accounts
2.2 1 Revenue recognition
2.2 2 Inventory
2.2 3 Property, plant, and equipment
2.2 4 Intangible assets
2.2 5 Liabilities
2.2 6 Equity
2.2 7 Compensation and benefits
2.3 Specific Transactions, Events, and Disclosures
2.3 1 Leases
2.3 2 Income taxes
2.3 3 Pensions and other post-retirement benefits
2.3 4 Derivatives and hedging
2.3 5 Business combinations and consolidations
2.3 6 Foreign currency transactions and translations
2.3 7 Interim financial reporting
2.4 Governmental Accounting and Not-for-Profit Accounting
2.4 1 Governmental accounting principles
2.4 2 Governmental financial statements
2.4 3 Not-for-profit accounting principles
2.4 4 Not-for-profit financial statements
3 Auditing and Attestation (AUD)
3.1 Engagement Planning and Risk Assessment
3.1 1 Engagement acceptance and continuance
3.1 2 Understanding the entity and its environment
3.1 3 Risk assessment procedures
3.1 4 Internal control
3.2 Performing Audit Procedures and Evaluating Evidence
3.2 1 Audit evidence
3.2 2 Audit procedures
3.2 3 Analytical procedures
3.2 4 Substantive tests of transactions
3.2 5 Tests of details of balances
3.3 Reporting on Financial Statements
3.3 1 Audit report content
3.3 2 Types of audit reports
3.3 3 Other information in documents containing audited financial statements
3.4 Other Attestation and Assurance Engagements
3.4 1 Types of attestation engagements
3.4 2 Standards for attestation engagements
3.4 3 Reporting on attestation engagements
4 Business Environment and Concepts (BEC)
4.1 Corporate Governance
4.1 1 Internal controls and risk assessment
4.1 2 Code of conduct and ethics
4.1 3 Corporate governance frameworks
4.2 Economic Concepts
4.2 1 Microeconomics
4.2 2 Macroeconomics
4.2 3 Financial risk management
4.3 Financial Management
4.3 1 Capital budgeting
4.3 2 Cost measurement and allocation
4.3 3 Working capital management
4.3 4 Financial statement analysis
4.4 Information Technology
4.4 1 IT controls and security
4.4 2 Data analytics
4.4 3 Enterprise resource planning (ERP) systems
4.5 Operations Management
4.5 1 Strategic planning
4.5 2 Project management
4.5 3 Quality management
4.5 4 Supply chain management
3 2 1 Audit Evidence Explained

2 1 Audit Evidence Explained

Key Concepts

Audit Evidence

Audit evidence is the information used by the auditor to determine whether the financial statements are prepared in accordance with the applicable financial reporting framework. This includes both documentary evidence (e.g., invoices, contracts) and corroborative evidence (e.g., confirmations from third parties).

Types of Audit Evidence

There are two main types of audit evidence: documentary and corroborative. Documentary evidence includes financial records, contracts, and invoices. Corroborative evidence includes confirmations from third parties, such as bank statements and customer confirmations.

Example: An auditor may request bank statements and confirmation letters from a company's bank to verify the accuracy of cash balances reported in the financial statements.

Sufficient and Appropriate Evidence

Sufficient evidence means that the amount of evidence gathered is enough to support the auditor's conclusions. Appropriate evidence means that the evidence is relevant and reliable. The auditor must balance the need for sufficient evidence with the cost and practicality of obtaining it.

Example: To verify accounts receivable, an auditor may send confirmation requests to a sample of customers. The number of confirmations sent must be sufficient to provide a reliable basis for the auditor's conclusion, but not so many that the cost outweighs the benefit.

Audit Procedures

Audit procedures are the specific actions taken by the auditor to gather evidence and evaluate the assertions made in the financial statements. These procedures can include tests of controls, substantive tests of transactions, and analytical procedures.

Example: The auditor may perform a test of controls by observing employees processing cash receipts to assess the effectiveness of the company's cash handling procedures.

Evaluation of Audit Evidence

The evaluation of audit evidence involves assessing the reliability and relevance of the evidence gathered. The auditor must consider the source of the evidence, the nature of the information, and any limitations or biases that may affect its reliability.

Example: If an auditor receives conflicting information from different sources, such as the company's records and a third-party confirmation, the auditor must evaluate the reliability of each source to determine the appropriate course of action.

Examples and Analogies

Consider audit evidence as "pieces of a puzzle," where each piece (evidence) helps the auditor form a complete picture of the financial statements. Sufficient and appropriate evidence is like having enough high-quality pieces to complete the puzzle accurately.

Audit procedures are the "tools" the auditor uses to gather these pieces, similar to the instruments a detective uses to collect clues. The evaluation of audit evidence is akin to "analyzing the clues" to determine their reliability and relevance.

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