Performing Further Procedures and Obtaining Evidence
What the exam tests here
This domain is about evidence: the types of procedures (inspection, observation, inquiry, confirmation, recalculation, reperformance, analytical procedures, and scanning), and the characteristics of reliable evidence. Know that evidence is more reliable when it is external, obtained directly by the auditor, documentary, and from original rather than copies. Inquiry alone is never sufficient.
Key concepts: audit sampling (statistical vs. nonstatistical, sampling risk vs. nonsampling risk, tolerable and expected deviation rates), confirmations (positive vs. negative, when negative is acceptable), analytical procedures (used in planning and final review; more effective when relationships are predictable and data is reliable), and the treatment of subsequent events and going concern indicators. Also know the auditor's responsibility for fraud (brainstorming, inquiry of management, journal entry testing) and the use of specialists.
Traps
Questions often reward recognizing that negative confirmations are acceptable only when risk is low and a large number of small balances exist. Another trap: treating inquiry as sufficient evidence. Watch for sampling confusion-sampling risk is the risk the sample is not representative; nonsampling risk is human error. Also note that analytical procedures alone are generally not sufficient for significant risks.
Rule of thumb
Rank evidence reliability: external > internal; direct > indirect; original > copy; auditor-observed > client-represented. If a question asks whether evidence is sufficient, check both quantity (extent) and quality (reliability).
Worked example
For accounts receivable, the auditor sends positive confirmations to large balances and negative confirmations only to a large group of small, low-risk balances, then performs alternative procedures for nonresponses.