Week 3 Discussion Questions and Participation - Essay Example

1. To comply with the third standard of field work auditors must accumulate sufficient competence evidence to support the opinion issues. Competence and sufficiency are two determinants of persuasive evidence. Competence is associated with the degree to which evidence can be considered trustworthy. Since people believe in the validity of evidence it makes it become persuasive. The fact that managers willingly provide documentation to auditors creates an environment of trust and mutual cooperation.

Evidence must also be relevant. Relevant implies that it pertains to the audit objective that the auditor is testing. Typically evidence that is collected from an outside source is more reliable than evidence provided by internal sources. 2. The tolerance exception rate (TER) represents the exception rate that the auditor will permit in the population and still be willing to conclude the control in operating effectively (Arens, Elder, 2006). The TEC can be used by auditors as a way to determine the acceptable level of error within the audit.

The auditor has to use a sample population that is large enough. Larger sample sizes are needed for lower TER than for higher TER scores. Attributes that are of less importance also tend to have higher TER. Arens, A., Elder, R. (2006). Auditing And Assurance Services: An Integrated Approach (11th ed.). Prentice Hall. 3. As you stated competent and sufficient are two important factors to consider when testing persuasiveness in evidence. I like how you included in your response a list of seven characteristics of competence evidence.

Timeliness is very important because the evidence has to match the timeframe for it to have validity. Ironically during the Enron case the auditors abused their power by destroying evidence prior to authorities arriving at the scene. Their timeliness was impeccable, but eventually Author Anderson was prosecuted of criminal charges. 4. Your response mentioned the seven characteristics of competent evidence. I though that these attributes were extremely important for this week’s discussion. The qualification or credentials of the individual providing the evidence is an important factor to consider.

Information is more reliable when is provided by the CEO of the company than when an office clerk prepares it. I agree that objective evidence is typically more reliable than subjective evidence. Often subjective evidence is filled with emotions and personal feelings. 5. I think that the effectiveness of a client’s internal control is very important because good internal controls serve as a preventive tool that help detect any threats to a system. If a company suddenly hired 100 immigrant workers this act could be considered a major threat that places the company in risk.

An internal control mechanism that can prevent the firm from hiring immigrants is to require a copy of the social security card with the job application. 6. Persuasive evidence is expected because people expect a lot from the accounting profession. In 2001 the general public demanded tougher regulations and as a consequence the Sarbanes-Oxley Act of 2002 passed into law. Internal auditors have the tough job of auditing the work of the other employees of the department. A high ethical conduct is an important element in any auditing process.

Evidence that is not guided towards the auditors goals and objective can be misguiding. 7. I agree with you that auditor independence is very important. The bar got raised in terms of auditor independence with the arrival of the Sarbanes-Oxley Act in 2002. In the past accounting firms had conflicts of interest, but they refuse to admit them because doing so hurt their profitability. Today auditors cannot have other accounting or consulting contracts with their clients to ensure the audit report is unbiased.

Users of financial information rely on the credibility and trustworthiness of its accountants. 8. It is a good practice for auditors to base their conclusions about systems of information on evidence. Evidence provides an audit trail that can be traced back to ensure the validity of the information. Audit procedures must be properly designed to streamline the auditing process. I agree with you that the strength of evidence is dependent on its persuasiveness. Whenever there are concerns regarding the validity of accounting information managers can order an audit of the operation.

Auditing work performed by external auditors is more reliable than internal auditing. Sometimes the internal auditors of a company are visualized as a threat by the other employees of the company. 9. Auditors establish the minimum rate of exception based on their judgment of the maximum amount of mistakes. The amount of errors is a subjective value, but most auditors realize that errors or mistakes should be kept to the minimum. I agree with you that no matter how effective control mechanisms are mistakes will happen.

Typically larger audit assignments are more likely to have a higher number of errors. Materiality is an important factor when assessing the relevance of errors. The objective of any statistical analysis is to obtain data that is valid. Errors should always be minimized in any type of auditing job. 10. I agree with your statement that establishing the right level of TER requires the professional judgment of the auditor. Low TER numbers should be established by the auditors in order for the auditing procedures to be reliable.

When an auditor finds lots of errors in the accounting data the final audit report will provide information that reflects poorly on the company and its employees. It is important to establish the right level of TER. An interesting fact you mentioned in regards to TER is that it varies depending on the level of risk and compliance requirements.