Auditing Principles & Procedures Flashcards

Which type of audit evidence is generally considered the most reliable?

Answer: Externally generated documents obtained directly by the auditor

Evidence obtained directly from external sources is most reliable because it is independent of client influence.

What is the primary purpose of audit working papers?

Answer: To support the audit opinion and document work performed

Working papers document the evidence gathered and procedures performed to support the auditor's conclusions.

In insurance auditing, a 'walkthrough' procedure is used primarily to:

Answer: Verify that internal controls operate as described

A walkthrough traces one or a few transactions through the system to confirm controls function as described in documentation.

When an auditor identifies a discrepancy in reserve calculations, the most appropriate first step is to:

Answer: Obtain an explanation from management and gather corroborating evidence

Auditors must investigate discrepancies by seeking management explanations and additional evidence before drawing conclusions.

Which audit procedure is best suited for verifying the existence of an insurance company's investment portfolio?

Answer: Confirmation with custodians or brokers holding the securities

Direct confirmation with the custodian or broker independently verifies that the investments physically exist.

The term 'audit trail' in insurance company auditing refers to:

Answer: A documented sequence linking transactions to source records

An audit trail is a chronological record of source documents and system entries that allows transactions to be traced end-to-end.

Analytical procedures in insurance auditing involve:

Answer: Evaluating financial data by studying plausible relationships

Analytical procedures assess reasonableness by comparing financial data against expectations derived from trends, ratios, and industry benchmarks.