Wiley Practitioner's Guide to GAAS 2020. Joanne M. Flood

      Ultimately, you should consider that you are making a conclusion about the effectiveness of internal control as a whole. When you evaluate activity-level controls, you should consider the effectiveness of the entire information-processing stream, not individual control procedures in isolation.

      Examples of Evidential Matter That May Support the Specific Assertions Embodied in Financial Statements

Another approach is a source list of procedures or evidential matter to be used as a resource in developing audit programs. Exhibit 12.3 indicates what this approach might look like for some common financial statement components. Usually such source lists present either evidential matter or procedures but, to avoid repetition, not both. For example, if the evidential matter is minutes of board meetings, the procedure is to read the minutes. Or if the procedure is to inspect a broker’s advice, the evidential matter is the broker’s advice.

      Another approach is to use standardized audit programs developed for common components of financial statements. This approach is not illustrated here. Many auditors prefer source lists to packaged programs because of a concern that standardized programs promote routine application and do not encourage exercise of judgment.

Exhibit 12.3 Source List of Procedures or Evidential Matter

Elements of financial statements	Existence or occurrence	Completeness	Rights and obligations	Valuation or allocation	Presentation and disclosure
Cash	Bank confirmations	Bank reconciliations	Bank confirmations	Foreign currency exchange rates from newspapers, and so on	Confirmation of restrictions on bank balances
	Cash counts	Interbank transfer schedules			Contractual agreements relating to escrow funds, compensating balances, sinking funds, and so on
	Certificates of deposit and savings account books	Subsequent cutoff bank statements Review of controls over cash receipts and disbursements
Marketable securities	Security counts	Analyses of general ledger account activity	Certificate of ownership	Broker’s advices and documents supporting purchases of securities	Representation and other information regarding management’s intention to retain securities
	Security confirmations	Confirmations of security positions with brokers and dealers	Security confirmations	Market value quotations	Minutes of board or committee meetings
	Custodian’s reports	Custodian’s reports		Appraised values of infrequently traded securities	Contractual terms of debt securities and preferred stocks
		Review of subsequent transactions		Foreign currency exchange rates from newspapers, and so on	Confirmation of securities pledged under loan agreements, and so on
		Review of controls over security of investments and transactions
Receivables	Confirmation of account balances	Tests of year-end sales and shipping cutoff procedures	Confirmation of account balances	Aging of open balances	Confirmation of terms with debtors
	Underlying customer orders and agreements, invoices, and shipping documents	Reconciliation of trial balances and general control accounts	Subsequent collections	Credit experience and terms	Sales agreement and contract terms
	Subsequent collections	Analytical relationship of balances to recent sales volume	Sales records	Credit reports on customers	Terms of notes receivable and collateral held
	Customer correspondence	Analyses of general ledger account activity	Customer correspondence	Correspondence on collection follow-up	Confirmation of receivables sold with recourse, discounted, pledged, and so on
	Sales records	Review of controls over billings and cash receipts	Promissory notes	History of sales returns and allowances Industry experience and trends
				Subsequent collections, credits, and write-offs
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