ECONOMY, EFFICIENCY, EFFECTIVENESS AND ITS RELATIONSHIP WITH AUDIT MANAGEMENT

Economy

Utilization of something of value such as cost, time, energy, or other valuable. Economic concept ensures that the cost of the inputs used in the operation of the organization can be minimized.

Efficiency

Efficiency relates to how the company conducts its operations, so that the achieved optimization of available resources. Efficiency relates to the working methods (operations). In conjunction with the concept of input-process-output, efficiency is the ratio between output and input. How big is the output produced by using a certain number of inputs owned by the company? Good working method will be able to guide the process of running operations by optimizing the use of resources of the company. Thus, efficiency is a measure of a process that connects between the input and output of the company's operations.

Effectiveness

Effectiveness is the end product of an activity (operation) which has reached its destination, both in terms of quality of work, quantity of work and deadline targets

In brief definition of effectiveness can be understood as the level of success of a company to achieve its objectives. Is the implementation of a program / ​​activity has achieved its objectives? Effectiveness is a measure of output.

input-process-output

Audit management aims to identify activities, programs, and activities that still require improvement, so that the recommendations given will be achieved improvements over the management of the various programs and activities of the company. The emphasis of the management audit is directed primarily at the various objects audits that if it can be improved in the future will come, as well as prevent the occurrence of many losses.

The management audit sees that efficiency is used as a standard assertion that the standards can be implemented to reduce the risk. Effectiveness and efficiency in a company should also look at the safety of the workers, how companies that also pay attention to their employees in order to improve effectiveness and efficiency. The decline in corporate performance is demonstrated by the achievement of corporate profits, high customer complaints, high employee turnover, and so on, an indication that the company's management needs to be improved. These issues must be resolved. Audit management through the stages of the audit, to assess accurately the process (management) that have occurred, identify weaknesses and recommend improvements for the shortage.

MEMBERSHIP OF COOPERATION

Membership Cooperation
A group of people who have the same economic interests as the owner and also the service users and participate actively to developing cooperative ventures.

Requirement be member of the cooperateon

• A citizen of Indonesia
• Capable of performing legal actions
• Willing to abide by the articles of Association and bylaws
• Willing to comply with the rules applicable
• Desirous of furthering the cooperative
• No coercion of another party 
• Have same economic interest 

Special requirement

Special requirement are additional requirements that must be met by each of the members of the cooperative before they were accepted into the cooperative members in full.
Examples of special conditions:

1. Agricultural cooperatives
2. Fisherman Cooperative
3. Cooperative Rubber

• Its members comprised of farmers, workers and owners, the rubber tappers, who took control of the production results and sebagainyai.
• Special conditions of membership of this cooperative is the distinction between cooperative movement with business entity-business entities, such as limited liability company, CV and so on.

How to become a Member

• Learn more historically intents and purposes of such cooperatives, especially regarding the terms of membership and the rights and obligations as a member. 
• Complete the requirements to become a Member
• If the terms are acceptable, then the candidate completing the registration form in that cooperation.
• If the Board approves the request, then the next prospective members must be notified to the relevant start date can be accepted to be members of the cooperative.
• When a person becomes a member of a cooperative plea rejected, then his candidacy as a member can be re-submitted in RA, and his decision will be binding on the Board to fulfill them.

Obligations of members:

• Abide by the articles of Association and bylaws
• Participate in the program of cooperative venture
• Pay the main payment and obligation payment 
• Maintain and develop the principle of togetherness
• Adhere to and carry out the decisions of the Governing Board meetings and Member meeting

Right of member

• attend a vote opinion, stated in the RAT
• Select and elected officers and Trustees
• put forward opinions and suggestions to the Executive Board
• Utilizing the same services and cooperation between members
• Get information on development cooperative basis within budget

THE NATURE OF COOPERATIVE MEMBERSHIP

The nature of cooperative membership is voluntary and open.

• Voluntary membership is each member is voluntarily register to be cooperative members of their own accord, and could submit his resignation.
• Open Membership is that membership of the cooperative knows no discrimination in any form. Everyone who is able to meet the terms of a cooperative membership can be accepted to be members of the cooperative.

PROOF OF MEMBERSHIP IN THE COOPERATIVE

Book member list is one that is defined by the ACT on cooperatives, The book contains :

• member list 
• full name, 
• age, 
• livelihood, 
• place of residence, 
• date of entry be a member, 
• left thumb stamp or signature of the Member 
• Chairman's signature and date the signature

Type of Membership in Cooperation

• Full members 
• Candidate members 
• Served members 
• Extraordinary Member
• Founding members 

1. Full members

Members who have voting rights , meaning that it has to meet the requirements specified in the appropriate membership AD / ART and regulations applicable legislation , and has signed his name in the register of members .

2. Candidate members

• People who have not settled main payment , formally not fully complete the administrative requirements as specified in the AD / ART , so it has not been accepted as a full member of bias .
• Has the right to speak but did not have the right to elect and be elected to be the caretaker or supervisor .
• Obtain the same service .

Candidate Members have an obligation

• Pay obligation payment decisions taken in accordance with members' meeting ;
• Participate in cooperative efforts ;
• Abiding by AD / ART , decisions and meeting members of other provisions in force ;
• Maintain the good name and togetherness Cooperative 

3. Served members

Citizens who receive services on a regular basis of the cooperative , but have not applied to be members of the cooperative . Members served the said order directed to members of the cooperative .

4. Extraordinary Member

• A person can become extraordinary members , when concerned citizens who are capable of taking legal action , but has not been fully able to meet the requirements defined in the AD / ART cooperative . Besides the foreign citizen who has had a Residential Permit Card ( KIM ) who want to receive services in a cooperative , but has no requirement to be a member of the cooperative 
• Extraordinary members have the right to speak , but did not have the right to elect and be elected to be the caretaker or supervisor cooperatives ;
• Member is entitled of net income ( SHU ) in accordance with the decision of the meeting of members .

5. Founding members

The people who founded the cooperative , who attended the meeting establishment / incorporation and has met the membership requirements as well as claiming to be a member

WHAT IS THE LIABILITY AS A MEMBER ?

Members dependents is something the duty of every Member to bear the losses suffered by the cooperative in implementing programs that have been decided in a meeting of members. It can be fulfilled obligations in fiscal year runs or after it was decided in the meeting of members or accomplished within the framework of settlement of the dissolution of the Cooperative .

kinds of members dependents :

1. Dependents is limited , the maximum amount that is charged or required on every Member to offset / pay losses which amount is specified in the AD / ART ;
2. Dependents are not limited to , an infinite number assigned to each Member separately cover the loss / debt until paid off .

• At the time of the dissolution of the cooperative , members who have come out are not free from the obligation to bear the loss , all the losses incurred as a result of one incident in which he is still a member , provided that the exit of the members have not been through 12 months .

• In the event of any of its members as a cooperative insurer losses , referred to in Article 29 and Article 31 of the Articles of Association was not able to pay , the other members are required to bear the obligations they are not capable of it , each of equal magnitude .

End of membership

membership in the Cooperation will end when the Member concern :

• Request a stop at his own request 
• Dismissed by the Board for violating regulations 
• Died
• Contrary to the purposes of the cooperative
• Always detrimental to cooperatives

WHAT IF COOPERATIVE breakup?

If the Cooperative disbanded , the person's membership in the cooperative ends . In terms of the Cooperative is still a bona fide debt to third parties , then each member is obliged to bear the corresponding provisions in the AD / ART . If the cooperative still has a wealth of after finished the paying debts , then the member may receive distribution in accordance with the requirements of AD / ART .

The Cooperation as Business Institution

What is Cooperation?

Organization of a group of people who have the same interests with the goal of welfare for its members.

What is Business Institution?

Organizations that combine and coordinate resources for the purpose of manufacturing and producing goods or services.

Cooperative is an economic movement that is based on a family basis. Cooperatives in Indonesia has grown rapidly due to the members comprised of the general public have to know the benefits of the establishment of cooperatives, which can help the economy and develop the creativity of each member. In addition, the cooperative also can be said as a business organization for cooperative activities that occur in nature generate a profit or profits in general be a goal of a business organization.

Business organization is an organization that combines and coordinates the resources for the purpose of manufacture and produce goods or services. Conceptually, the Cooperative as a Business Organization entrepreneurs who hold a weak economy, have some potential advantages to participate solve social problems - the economy.

To build a business organization, the business environment is also required. The business environment is one of the activities that will be undertaken in the form perbisnisan someone in a business, where in the business we are in demand to run or manage a business with his best of every person must have the desire and establishing the right of a business and one that must be willing to live her business to success.

Cooperative as a business organization so that:

• Subject to the rules and principles of economics that apply
• Able to generate profits and to develop the organization and its business
• Members as the owner and user of services
• Requires a business management system (financial, technical, organizational and information)

Role of Cooperatives in the National Economy

Cooperatives as an economic institution formed of, by and for its members is expected to provide business development opportunities and in particular the members of the surrounding community at large in order to improve the economic and social welfare. A cooperative economic organization that is distinct (has distinctive characteristics), with the corporate philosophy, corporate culture (cooperative business practices must be able to present the values ​​that were able to grow and thrive in a competitive market environment).

Values ​​inherent in the organization and management of cooperatives is the ability to self-help, democratic management, justice and solidarity, with values ​​above suggests that the cooperative as an organization is capable of self-help (selfhelp organization) must have a clear economic objectives and togetherness management (Joint management) are professional, so that cooperatives can put functions and its role as a strategic economic institutions in developing the economic potential of the people, because the cooperative is a business entity related to the life and economy of most of the people were scattered throughout the county, town and village in Indonesia, which covers almost all types of existing business fields.

Cooperative potential in the market system requires and in any business plan or utilize the maximum benefit so that companies can make a profit or of net income that is able to hold reserves in order to further business development. In order for companies to compete companies must conduct market orientation to be able to excel in the competitive market competition.

Cooperative has two markets:

• Internal Market, in which the direction of the distribution of goods addressed to the cooperative members.
• External market, is a market demonstrated outside the members or to the public. Cooperative acts as a supplier or call the marginal cost and supply Coorperative equal to the revenue. Cooperative will choose determines the price based on the price at cost with no more shortage.Koperasi have a great opportunity in terms of pricing than the market because it does not hold on to the position of maximum profit.

Purpose Cooperative Company

The main purpose of cooperatives focused on improving the welfare of its members and the public, it is clearly seen in Article 3 of Law No. 25 of 1992 on
Cooperatives, said that the cooperative aims to promote the welfare of members in particular and the society in general and to help build the national economy in order to realize an advanced society, just and prosperous based on Pancasila and the Constitution of 1945.

To achieve this, although not as an organization cooperative associations profit-oriented capital, but capital is an important factor to achieve this goal in addition to factors other resources. Not that did not attempt to achieve cooperative maximum profit, as a business entity, the cooperative aims to make a profit that can serve as a tool to achieve the ultimate goal.

Cooperative goals as a company or business entity is not solely only on the orientation of earnings (profit-oriented), but also on the orientation of the benefits (benefit oriented). Therefore, in many cases co-operatives, co-operative management of non-profit as the company's goals as they work based on the service (service at cost)....

Cooperative is an institution that should be managed as befits the institution. Businesses. In a business organization required an effective management Known and efficient management.

Likewise in cooperative enterprises, management is a right that must exist in order to realize the desired objectives.

Cooperatives are people based and not based capital as a conventional business organization or company. Cooperative organizations often turn out to be a bunch of capital even openly cooperative play often proceeds from fees or deposits cooperative members, but it is running or distributing third-party capital (bank)

In addition to the cooperative institutions that have been known, at this time also developed institutions Baitul Maal wat Tamwil (BMT) is an agency supporting small economic activities under (low income) with an economic system based on Islamic Sharia. Legal Entity of BMT BMT can be cooperative for those who have had a wealth of more than USD 40 million and has been prepared by the administration to be a healthy cooperative in terms of cooperative and good management, analyzed in terms of worship, practice shalihan officials who have managed BMT Islam.Sebelum Sharia legal status of cooperatives, BMT can be shaped as SHGs (Self Help Groups) that can serve as a pre cooperative.

The Conclusion:

Cooperatives can be regarded as a business organization because of the cooperative nature yangterjadi activities generate a profit or profits in general be a goal of a business organization. But in fact the potential of cooperatives in the market system requires effort and planning into each gain or exploit the maximum so that companies can make a profit or of net income that is able to hold reserves in order to further business development....

Understanding, co-operative is not a business organization, although the implementation expects profit. But the profit is distributed to members of the SHU (Business Profits). Running now, the cooperative has forgotten what its primary purpose. Many of the cooperatives in Indonesia indirectly to business organizations by certain elements. So we see in terms of implementation, cooperatives and business organizations actually almost the same.

THE ECONOMIC PROBLEM: SCARCITY AND CHOICE

• Scarcity is the fundamental economic problem of having humans who have unlimited wants and needs in a world of limited resources
• Choice consists of the mental process of judging the merits of multiple options and selecting one of them.

Types of choices

• Command decisions
• Delegated decisions
• Avoided decisions
• "No-brainer" decisions

Three basic questions must be answered in order to understand an economic system:

• What gets produced?
• How is it produced?
• Who gets what is produced?

Capital refers to the things that are themselves produced and then used to produce other goods and services.

According to Adam Smith and David , factors of production:

• Land :naturally-occurring goods such as water, air, soil, minerals, flora and fauna that are used in the creation of products
• Labor : human effort used in production which also includes technical and marketing expertise
• Capital: human-made goods (or means of production), which are used in the production of other goods.

Production

Production is a process, and as such it occurs through time and space. There are three aspects to production processes:

• The quantity of the good or service produced,
• The form of the good or service created,
• The temporal and spatial distribution of the good or service produced.

Resources or factors of production are the inputs into the process of production; goods and services of value to households are the outputs of the process of production

Scarcity and Choice in a One-Person Economy

• Nearly all the basic decisions that characterize complex economies must also be made in a single-person economy.
• Constrained choice and scarcity are the basic concepts that apply to every society.
• Opportunity cost is that which we give up or forgo, when we make a decision or a choice.

Scarcity and Choice in an Economy of Two or More

• A producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources
• A producer has a comparative advantage in the production of a good or service over another if it can produce that product at a lower opportunity cost.

Specialization, Exchange and Comparative Advantage

• According to the theory of competitive advantage, specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers

Capital Goods and Consumer Goods

• Capital goodsare goods used to produce other goods and services.
• Consumer goodsare goods produced for present consumption
• Investment is the process of using resources to produce new capital. Capital is the accumulation of previous investment.
• The opportunity cost of every investment in capital is forgone present consumption

The Production Possibility Frontier

• The production possibility frontier (ppf)is an expository figure for representing scarcity, cost, and efficiency. In the simplest case an economy can produce just two goods (say "guns" and "butter")

The Law of Increasing Opportunity Cost

• The slope of the ppf curve is also called the marginal rate of transformation (MRT).
• The negative slope of the ppf curve reflects the law of increasing opportunity cost. As we increase the production of one good, we sacrifice progressively more of the other.

Economic Growth

• Economic growth is defined as the increasing capacity of the economy to satisfy the wants of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs (labor, capital, material, energy, etc.)
• The main sources of economic growth are capital accumulation and technological advances
• Outward shifts of the curve represent economic growth
• An outward shift means that it is possible to increase the production of one good without decreasing the production of the other.
• From point D, the economy can choose any combination of output between F and G.

Measuring economic growth : Economic growth is measured as a percentage change in the Gross Domestic Product (GDP) or Gross National Product (GNP)
Capital Goods and Growth in Poor and Rich Countries

• Rich countries devote more resources to capital production than poor countries.
• As more resources flow into capital production, the rate of economic growth in rich countries increases, and so does the gap between rich and poor countries.

Economic Systems

• The economic problem: Given scarce resources, how, exactly, do large, complex societies go about answering the three basic economic questions?
• Economic systems are the basic arrangements made by societies to solve the economic problem. They include:Command economies, Laissez-faire economies, Mixed systems
• In a command economy, a central government either directly or indirectly sets output targets, incomes, and prices.
• In a laissez-faire economy,individuals and firms pursue their own self-interests without any central direction or regulation. 
• The central institution of a laissez-faire economy is the free-market system.
• A market is the institution through which buyers and sellers interact and engage in exchange.
• Consumer sovereignty is the idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase
• Free enterprise: under a free market system, individual producers must figure out how to plan, organize, and coordinate the production of products and services.
• In a laissez-faire economy, the distribution of output is also determined in a decentralized way. The amount that any one household gets depends on its income and wealth.
• The basic coordinating mechanism in a free market system is price. Price is the amount that a product sells for per unit. It reflects what society is willing to pay.

Mixed Systems, Markets, and Governments

Since markets are not perfect, governments intervene and often play a major role in the economy. Some of the goals of government are to:

1. Minimize market inefficiencies
2. Provide public goods
3. Redistribute income
4. Stabilize the macroeconomic:

• Promote low levels of unemployment
• Promote low levels of inflation

LOCATION STRATEGIES

Location Strategies

The objective of location strategy is to maximize the benefit of location to the firm

Location and Costs

• Location decisions based on low cost require careful consideration
• Once in place, location-related costs are fixed in place and difficult to reduce
• Determining optimal facility location is a good investment 

Location and Innovation

• Cost is not always the most important aspect of a strategic decision
• Four key attributes when strategy is based on innovation
• High-quality and specialized inputs
• An environment that encourages investment and local rivalry
• A sophisticated local market
• Local presence of related and supporting industries

Location Decisions

• Long-term decisions 
• Decisions made infrequently
• Decision greatly affects both fixed and variable costs 
• Once committed to a location, many resource and cost issues are difficult to change 

Key Success Factors

Country Decision

• Political risks, government rules, attitudes, incentives 
• Cultural and economic issues 
• Location of markets 
• Labor talent, attitudes, productivity, costs 
• Availability of supplies, communications, energy 
• Exchange rates and currency risks 

Region/ Community Decision

• Corporate desires 
• Attractiveness of region 
• Labor availability and costs 
• Costs and availability of utilities 
• Environmental regulations 
• Government incentives and fiscal policies 
• Proximity to raw materials and customers 
• Land/construction costs 

Site Decision

• Site size and cost 
• Air, rail, highway, and waterway systems 
• Zoning restrictions 
• Proximity of services/ supplies needed 
• Environmental impact issues 

Factors That Affect Location Decisions

 1. Labor productivity

• Wage rates are not the only cost
• Lower productivity may increase total cost 

2. Exchange rates and currency risks

• Can have a significant impact on costs
• Rates change over time

3. Costs

• Tangible - easily measured costs such as utilities, labor, materials, taxes 
• Intangible - less easy to quantify and include education, public transportation, community, quality-of-life

4. Political risk, values, and culture

• National, state, local governments attitudes toward private and intellectual property, zoning, pollution, employment stability may be in flux
• Worker attitudes towards turnover, unions, absenteeism
• Globally cultures have different attitudes towards punctuality, legal, and ethical issues

5. Proximity to markets

• Very important to services
• JIT systems or high transportation costs may make it important to manufacturers 

6. Proximity to suppliers

• Perishable goods, high transportation costs, bulky products 

7. Proximity to competitors

• Called clustering
• Often driven by resources such as natural, information, capital, talent
• Found in both manufacturing and service industries 

A. Factor-Rating Method

• Popular because a wide variety of factors can be included in the analysis
• Six steps in the method :

1. Develop a list of relevant factors called key success factors
2. Assign a weight to each factor
3. Develop a scale for each factor
4. Score each location for each factor
5. Multiply score by weights for each factor for each location
6. Recommend the location with the highest point score

B. Location Break-Even Analysis

•  Method of cost-volume analysis used for industrial locations
• Three steps in the method :

1. Determine fixed and variable costs for each location
2. Plot the cost for each location 
3. Select location with lowest total cost for expected production volume 

C. Center-of-Gravity Method

• Finds location of distribution center that minimizes distribution costs
• Considers :  Location of markets
         Volume of goods shipped to those markets
         Shipping cost (or distance) 

• Place existing locations on a coordinate grid
• Calculate X and Y coordinates for ‘center of gravity’

D. Transportation Model

• Finds amount to be shipped from several points of supply to several points of demand
• Solution will minimize total production and shipping costs
• A special class of linear programming problems

Service Location Strategy

1. Purchasing power of customer-drawing area
2. Service and image compatibility with demographics of the customer-drawing area
3. Competition in the area
4. Quality of the competition
5. Uniqueness of the firm’s and competitors’ locations
6. Physical qualities of facilities and neighboring businesses
7. Operating policies of the firm
8. Quality of management

The Call Center Industry

• Requires neither face-to-face contact nor movement of materials
• Has very broad location options
• Traditional variables are no longer relevant
• Cost and availability of labor may drive location decisions

Geographic Information Systems (GIS)

• Important tool to help in location analysis
• Enables more complex demographic analysis
• Available data bases include
• Detailed census data
• Detailed maps
• Utilities
• Geographic features
• Locations of major services

THE BEST RATES AND DEALINGS FOR FREIGHT AUDIT

In the world of shrinking boundaries international business is the call of the day. And whenever there is a business between international parties across geographical boundaries one of the most important constituents of that business is transportation of goods Ocean freight rates. Without the transportation of goods these business transactions are in most cases than not deemed incomplete. Speaking about transportation of goods one of the most important way to do the same is ocean freight. From time immemorial Ocean freight has been used to transport goods from one country to the other.In the earlier times ocean freight was used to transport spices, animals, textile goods, people and almost anything under the sun.

These are nothing but surveying goods and the calculating an estimated cost in transferring those goods via ocean freight to another country. There are a lot of organizations who offer services in Freight bill audit and freight audit and in more cases than not the ocean freight companies offer the services of Freight bill audit and freight audit as a value added service. After that is done customers generally vet these rates from other companies offering Freight bill audit and freight audit Freight audit. The rates that come up in Freight bill audit and freight audit generally depend on various reasons like what are the goods that are to be transported, what kind of ocean freight are they being transported by, what is the time limit for the goods to be received by the customer, various taxes and custom duties and most important of all the fact whether the customer is opting for full container load or less than full container load. This fact more than others affect the cost figures that come up in Freight bill audit and freight audit, Ocean freight rates At that time ocean freight had to be used out of compulsion s there was no alternative way for various companies to transport their good to their counterparts in other companies in a different country. But in the present world although there is the option of air lifting goods from one country to the other country across the seven seas but still companies prefer the ocean freight over air freight generally for the reason that ocean freight rates are significantly on the lower side than air freight rates Freight bill audit. Ocean freight rates although have increased due to the increase in the prices of fuel, but because ocean freight is able to carry a huge amount of load in containers on the entire ship as compared to the small consignment which is possible to be transported by air freight, ocean freight rates have stayed on the lower side as compare to air freight. Agreed that ocean freight generally involve longer lead times and waiting periods but even than companies prefer ocean freight over air freight simply because of the cost saving implications. Freight bill audit and freight audit have become increasingly well known words in the business circles Freight audit. As ocean freight has increase so has the processes of Freight bill audit and freight audit.

Audit Evidence Chapter 7

Learning Objective 1

• Contrast audit evidence with evidence used by other professions.

EVIDENCE: any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria.

Nature of Evidence

• The use of evidence is not unique to auditors
• Evidence is also used by scientists, lawyers, and historians

All use evidence to help them draw conclusions.

Learning Objective 2

• Identify the four audit evidence decisions that are needed to
•  Create an audit program.

Audit Evidence Decisions

About what evidence to gather and how much of it to accumulate.

1. Which audit procedures to use

Detailed instruction that explains the audit evidence to be obtained during the audit.

2. What sample size to select for a given procedure

Vary the sample size from one to all the items in the population being tested.

3. Which items to select from the population

Methods can be used to select the specific items to be examined.

4. When to perform the procedures (timing)

Vary from early in the accounting period to long after it has ended. In part, the timing decision is affected by when the client needs the audit to be completed.

Audit Program

It includes a list of the audit procedures the auditor considers necessary.
-Sample sizes
-Items to select
-Timing of the tests

Most auditors use computers to facilitate the preparation of audit programs.

Learning Objective 3

• Specify the characteristics that determine the persuasiveness of evidence.

Persuasiveness of Evidence
* Appropriateness

Is a measure of the quality of evidence, meaning its relevance and reliability in meeting audit objectives

Selecting audit procedures that Are relevant to the audit objective that the auditor is testing

When the auditor traced from the duplicate sales invoices to related shipping documents, the evidence was relevant for the occurrence transaction objective tracing from shipping documents to sales invoices, the auditor can determine whether shipments have been billed to customers. Relevant for completeness.
*Sufficiency

The quantity of evidence obtained determines its sufficiency.

Six Characteristics of Reliable Evidence

Refers to the degree to which evidence can be believable or worthy of trust

1. Independence of provider

Evidence obtained from a source outside the entity is more reliable than that obtained from within.

2. Effectiveness of client’s internal controls

When a client’s internal controls are effective, evidence obtained is more reliable than when they are weak.

3. Auditor’s direct knowledge

Evidence obtained directly by the auditor through physical examination, observation, recalculation, and inspection is more reliable than information obtained indirectly
4. Qualification of individuals providing the information
the individual providing evidence must be qualified.
5. Degree of objectivity
Objective evidence is more reliable than evidence that requires considerable judgment to determine whether it is correct. The qualifications of the person providing the evidence in subjective evidence.
6. Timeliness
Evidence is usually more reliable for balance sheet accounts when it is obtained as close to the balance sheet date as possible for income statement accounts, evidence is more reliable if there is a sample from the entire period under audit, such as a random sample of sales transactions for the entire year

Persuasiveness and Cost

• In making decisions about evidence for a given audit, both persuasiveness and cost must be considered.
• The auditor’s goal is to obtain a sufficient amount of appropriate evidence at the lowest total cost.

Learning Objective 4

—Identify and apply the eight types of evidence used in auditing.

Types of Audit Evidence

1. Physical examination

2. Confirmation

3. Documentation

4. Analytical procedures

5. Inquiries of the client

6. Recalculation

7. Reperformance

8. Observation

Physical Examination

The most reliable and useful types of audit evidence

-  It is the inspection or count by the auditor of a tangible asset.

-This type of evidence is most often associated with inventory and cash.

Verifying that an asset actually exists (existence objective) verifying existing assets are recorded (completeness objective).

Confirmation

The receipt of a direct written response from a third party verifying the accuracy of information that was requested by the auditor

Information	Source
Assets
Cash in bank Marketable securities Accounts receivable Notes receivable Owned inventory out on consignment Inventory held in public warehouses Cash surrender value of life insurance Liabilities	Bank Customer Maker Consignee Public warehouse Insurance company Investment custodian
Accounts payable Notes payable Advances from customers Mortgages payable Bonds payableOwners’ Equity	Creditor Lender Customer Mortgagor Bondholder
Shares outstanding Other Information	Registrar and transfer agent
Insurance coverage Contingent liabilities Bond indenture agreements Collateral held by creditors	Insurance company Bank, lender, and client’s legal counsel Bond holder Creditor

Documentation

Internal document has been prepared and used within the client’s organization and is retained without ever going to an outside party. Internal documents include duplicate sales invoices,