What procedures can an auditor use to obtain audit evidence?

What the interviewer wants to hear

• Inspection of records, documents or assets
• Observation of processes
• External confirmation
• Recalculation and reperformance
• Analytical procedures and inquiry

Model answer

The main procedures are inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry. Inspection means examining documents, records or physical assets, like reading a loan agreement or seeing a machine. Observation is watching a process, such as the inventory count. External confirmation is getting a direct written reply from a third party, like a bank or customer. Recalculation checks arithmetic, for example depreciation or interest. Reperformance means the auditor independently carries out a control, such as redoing a bank reconciliation. Analytical procedures compare relationships between data, and inquiry means asking knowledgeable people inside or outside the entity. Inquiry alone is rarely enough, so I combine procedures. The goal is sufficient appropriate evidence: enough in quantity, and relevant and reliable in quality, to support the conclusion for each assertion.

More easy Auditor questions

• What is a financial statement audit, and why do companies need one?
• What are financial statement assertions? Give examples for a balance and for a class of transactions.
• What are internal controls, and why do auditors care about them?
• How would you explain materiality to a client, and how do you set it?
• What types of audit opinion can an auditor give, and when is each used?
• What is the difference between tests of controls and substantive procedures? Give an example of each.
• What does professional skepticism mean to you? Give an example of applying it.
• What does an audit engagement letter contain, and why does it matter?
• What are the main threats to auditor independence, and how are they managed?