Chapter 1

CHAPTER 6 A Framework for Audit Evidence17

Accounting records The records of initial accounting entries and supporting records.

Analytical procedures Evaluations of financial information through analyzing plausible relationships among both financial and nonfinancial data.

Appropriateness of audit evidence A measure of the quality of audit evidence, and includes both the relevance and reliability of the evidence.

Audit adjustment Correction of a misstatement of financial statements that was or should have been proposed by the auditor, whether or not recorded by management, that could, either individually or when aggregated with other misstatements, have a material effect on the companys financial statements.

Audit documentation The written record that forms the basis for the auditors conclusions.

Audit program A workpaper that specifies the procedures to be performed in gathering audit evidence and is used to record the successful completion of each audit step.

Auditors specialist An individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the auditor to assist the auditor in obtaining sufficient appropriate audit evidence. An auditors specialist may be either an auditors internal specialist (who is a partner or staff, including temporary staff, of the auditorsfirm or a network firm) or an auditors external specialist.

Corroboration Obtaining sufficient evidence that managements explanation is accurate.

Cross-footing Checking the agreement of the cross-addition of a number of columns of figures that sum to a grand total.

Cutoff period A period of time usually covering several days before and after the clients balance sheet date.

Cutoff tests Procedures applied to transactions selected from those recorded during the cutoff period to provide evidence as to whether the transactions have been recorded in the proper period.

Direct evidence Audit evidence that requires only one inference to reach a conclusion about the assertion being tested. Usually that inference is that the sample taken is representative of the population as a whole.

Directional testing An approach to testing account balances that considers the type of misstatement likely to occur in the account balance and the corresponding evidence provided by other accounts that have been tested. The auditor normally tests assets and expenses for overstatement, and liabilities and revenues for understatement, because (1) the major risks of misstatements on those accounts are in those directions or (2) tests of other accounts provide evidence of possible misstatements in the other direction.

Disaggregation Breaking data down into their component parts, such as different time periods, geographical locations, customer type, or product lines.

Footing Adding a column of figures to verify the correctness of the clients totals.

Indirect evidence Audit evidence that requires a linkage of inferences to provide assurance about the assertion being tested, that is, one or more inferences are made. Examples include inferences made when using analytical procedures as audit evidence.

Interim date A date at which audit evidence is collected earlier than the balance sheet date.

Managements specialist An individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements.

Quantification Determining whether managements explanation for observed differences can in fact account for the observed difference.

Reasonableness test The development of an expected value of an account by using data partly or wholly independent of the clients accounting information system.

Recalculating estimated amounts Recomputing an amount that the client has already estimated, such as recomputing the allowance for doubtful accounts based on a formula related to the aging of accounts receivable ending balances.

Related-party transactions Transactions that a client has with other companies or people who may be related to either the client or clients senior management.

Relevance of audit evidence Evidence that provides insight on the validity of the assertion being tested; that is, the evidence bears directly on the assertion being tested.

Reliability of audit evidence A measure of the quality of the underlying evidence. It is influenced by risk, potential management bias associated with the evidence, and the quality of the internal control system underlying the preparation of the evidence.

Reperformance The auditors independent execution of controls that were originally performed as part of the entitys internal control.

Roll-forward period The period between the confirmation date and the balance sheet date.

Scanning A type of analytical procedure involving the auditors review of accounting data to identify significant or unusual items to test.

Significant issues or audit findings Substantive matters that are important to the procedures performed, evidence obtained, or conclusions reached on an audit.

Sufficiency of evidence Measure of the quantity of audit evidence.

Tests of extensions Recomputing items involving multiplication.

Tracing Taking a sample of original source documents and ensuring that the transactions related to the source documents have been recorded in the appropriate journal and general ledger.

Vouching Taking a sample of recorded transactions and obtaining the original source documents supporting the recorded transaction.