CPA AUD: Audit Evidence Audit Procedures Inspection Observation Inquiry Confirmation Recalculation Reperformance Analytical

What Is It?

Audit Procedures: Inspection, Observation, Inquiry, Confirmation, Recalculation, Reperformance, Analytical These procedures are used to gather and evaluate audit evidence to support audit conclusions and opinions.

In the real world, auditors use these procedures to identify and assess risks, gather evidence, and evaluate the effectiveness of internal controls.

Why Does the Exam Ask This?

This topic measures the professional judgment and compliance logic of the learner in applying audit procedures to gather and evaluate evidence.

What Do I Need to Know First?

1. Audit objectives and scope
2. Risk assessment and audit planning
3. Audit evidence and its evaluation
4. Audit procedures and techniques
5. Audit reporting and communication

Topic Snapshot

Audit Procedures: Inspection, Observation, Inquiry, Confirmation, Recalculation, Reperformance, Analytical are essential techniques used by auditors to gather and evaluate audit evidence. These procedures help auditors to identify and assess risks, gather evidence, and evaluate the effectiveness of internal controls.

Exam / Job / Audit Weighting

Frequency: 15-20% Difficulty Rating: Intermediate Question Type or Real-World Task Type: Multiple-choice questions, short-answer questions, and case studies

Difficulty Level

intermediate

Must-Know Rules, Formulas, Standards, or Principles

1. The auditor must obtain sufficient appropriate audit evidence to support the audit opinion.
2. The auditor must use a systematic and disciplined approach to gather and evaluate audit evidence.
3. The auditor must consider the risk of material misstatement when selecting audit procedures.

Misconceptions

1. That inspection is the only audit procedure used.
2. That observation is only used for physical inspections.
3. That inquiry is only used for gathering information from management.
4. That confirmation is only used for verifying transactions.
5. That reperformance is only used for testing controls.

Common Mistakes

1. Failing to identify and assess risks.
2. Failing to gather sufficient audit evidence.
3. Failing to evaluate audit evidence effectively.
4. Failing to consider the risk of material misstatement.
5. Failing to document audit procedures and evidence.

The Common Trap

The trap is to assume that one audit procedure is sufficient to gather and evaluate audit evidence.

Terms to Remember

1. Audit evidence: Information used by the auditor to support the audit opinion.
2. Audit procedure: A systematic and disciplined approach to gather and evaluate audit evidence.
3. Risk assessment: Identifying and assessing risks to determine the likelihood and potential impact of material misstatement.
4. Reperformance: Testing controls by performing the same task as the entity.
5. Analytical procedures: Evaluating financial data to identify unusual transactions or relationships.

Step-by-Step Process

1. Identify and assess risks.
2. Select audit procedures based on the risk assessment.
3. Gather audit evidence using the selected procedures.
4. Evaluate audit evidence to support the audit opinion.
5. Document audit procedures and evidence.

Exam Answer Builder

1-mark Question

What is the primary purpose of audit procedures? a) To gather audit evidence b) To evaluate audit evidence c) To document audit procedures d) To report audit findings

Correct Answer: a) To gather audit evidence

Explanation: Audit procedures are used to gather audit evidence to support the audit opinion.

2-mark Question

What are the two main types of audit procedures? a) Inspection and observation b) Inquiry and confirmation c) Reperformance and analytical procedures d) Risk assessment and audit planning

Correct Answer: a) Inspection and observation

Explanation: Inspection and observation are two main types of audit procedures used to gather audit evidence.

5-mark Question

Describe the steps involved in performing a reperformance audit procedure. a) Identify the control to be tested b) Test the control by performing the same task as the entity c) Evaluate the results of the reperformance d) Document the results of the reperformance

Correct Answer: a) Identify the control to be tested, b) Test the control by performing the same task as the entity, c) Evaluate the results of the reperformance, d) Document the results of the reperformance

Explanation: The steps involved in performing a reperformance audit procedure include identifying the control to be tested, testing the control by performing the same task as the entity, evaluating the results of the reperformance, and documenting the results of the reperformance.

This vs That

Compare this topic with "Audit Sampling" which is a technique used to select a sample of transactions to evaluate the population.

Time-Saver Hack

Use the "Audit Procedure Matrix" to select the most effective audit procedures based on the risk assessment.

Mini Scenarios

Basic Scenario

An auditor is performing an inspection audit procedure to gather evidence about the entity's inventory. What should the auditor do first? a) Review the entity's inventory records b) Count the inventory on hand c) Verify the inventory with the entity's management d) Document the results of the inspection

Correct Answer: b) Count the inventory on hand

Explanation: The auditor should count the inventory on hand to gather evidence about the entity's inventory.

Applied Scenario

An auditor is performing a reperformance audit procedure to test the entity's control over cash receipts. What should the auditor do first? a) Identify the control to be tested b) Test the control by performing the same task as the entity c) Evaluate the results of the reperformance d) Document the results of the reperformance

Correct Answer: a) Identify the control to be tested

Explanation: The auditor should identify the control to be tested before performing the reperformance audit procedure.

Tricky Scenario

An auditor is performing an analytical procedure to evaluate the entity's financial data. What should the auditor do first? a) Identify the unusual transactions or relationships b) Evaluate the financial data to identify unusual transactions or relationships c) Document the results of the analytical procedure d) Report the findings to the audit committee

Correct Answer: b) Evaluate the financial data to identify unusual transactions or relationships

Explanation: The auditor should evaluate the financial data to identify unusual transactions or relationships before performing the analytical procedure.

Diagnostic MCQ Bank

Question 1

What is the primary purpose of audit procedures? a) To gather audit evidence b) To evaluate audit evidence c) To document audit procedures d) To report audit findings

Correct Answer: a) To gather audit evidence

Explanation: Audit procedures are used to gather audit evidence to support the audit opinion.

Question 2

What are the two main types of audit procedures? a) Inspection and observation b) Inquiry and confirmation c) Reperformance and analytical procedures d) Risk assessment and audit planning

Correct Answer: a) Inspection and observation

Explanation: Inspection and observation are two main types of audit procedures used to gather audit evidence.

Question 3

Describe the steps involved in performing a reperformance audit procedure. a) Identify the control to be tested b) Test the control by performing the same task as the entity c) Evaluate the results of the reperformance d) Document the results of the reperformance

Correct Answer: a) Identify the control to be tested, b) Test the control by performing the same task as the entity, c) Evaluate the results of the reperformance, d) Document the results of the reperformance

Explanation: The steps involved in performing a reperformance audit procedure include identifying the control to be tested, testing the control by performing the same task as the entity, evaluating the results of the reperformance, and documenting the results of the reperformance.

Question 4

What is the purpose of an analytical procedure? a) To gather audit evidence b) To evaluate audit evidence c) To identify unusual transactions or relationships d) To document audit procedures

Correct Answer: c) To identify unusual transactions or relationships

Explanation: An analytical procedure is used to identify unusual transactions or relationships in the financial data.

Question 5

What is the primary difference between an inspection and an observation audit procedure? a) An inspection is used to gather evidence about inventory, while an observation is used to gather evidence about cash receipts. b) An inspection is used to gather evidence about cash receipts, while an observation is used to gather evidence about inventory. c) An inspection is used to gather evidence about inventory, while an observation is used to gather evidence about payroll. d) An inspection is used to gather evidence about payroll, while an observation is used to gather evidence about inventory.

Correct Answer: a) An inspection is used to gather evidence about inventory, while an observation is used to gather evidence about cash receipts.

Explanation: An inspection is used to gather evidence about inventory, while an observation is used to gather evidence about cash receipts.

Real-World Patterns

1. Auditors use inspection audit procedures to gather evidence about inventory.
2. Auditors use reperformance audit procedures to test controls over cash receipts.
3. Auditors use analytical procedures to evaluate financial data and identify unusual transactions or relationships.

30-Second Cheat Sheet

1. Audit procedures are used to gather and evaluate audit evidence.
2. The primary purpose of audit procedures is to gather audit evidence.
3. There are two main types of audit procedures: inspection and observation.
4. Reperformance audit procedures are used to test controls.
5. Analytical procedures are used to evaluate financial data and identify unusual transactions or relationships.

Related Concepts

1. Audit sampling
2. Risk assessment
3. Audit evidence and its evaluation

Verified Source List

1. American Institute of Certified Public Accountants (AICPA)
2. Public Company Accounting Oversight Board (PCAOB)
3. Financial Accounting Standards Board (FASB)
4. Securities and Exchange Commission (SEC)
5. Institute of Internal Auditors (IIA)