6.0 Materiality & Audit Evidence

Question 1

What are the relationships between materiality and audit evidence?

Answer 1

Lower the materiality level, the greater the amount of evidence needed (inverse relationship)

Larger or more significant an account balance is, the greater the amount of evidence needed (direct relationship)

Question 2

What type of audit evidence must the auditor acquire?

Answer 2

The auditor is required to gather sufficient appropriate evidence to support their conclusions.
> Sufficiency is the quantity
> Appropriateness is the quality

Question 3

What is the occurrence & existence assertion and what audit evidence is required?

Answer 3

Evidence that the client records are genuine (only real transactions & balances are recorded) e.g. external confirmation

Question 4

What is the completeness assertion and what audit evidence is required?

Answer 4

Evidence that all transactions & balances are recorded by the client (no omissions in the client’s records) e.g. unrecorded creditor testing.

Question 5

What is the accuracy, valuation & allocation assertion and what audit evidence is required?

Answer 5

Evidence about the amount recorded (calculations, adjustments) e.g. expert valuations, reasonableness checks.

Question 6

What is the rights & obligations assertion and what audit evidence is required?

Answer 6

Evidence that the client has the right to record the asset and is obliged to discharge the responsibility (don’t belong to another entity) e.g. check registered owner for vehicles & land.

Question 7

What is the classification assertion and what audit evidence is required?

Answer 7

Evidence that transactions are recorded at the correct accounts e.g. compare invoice details to the accounting entries to verify appropriate classification of an expense.

Question 8

What are the main types of audit evidence?

Answer 8

1. Analytical (comparisons)
2. Documentary (confirmations or written representations)
3. Mathematical evidence (calculations by the auditor compared to client)
4. Oral (discussions with key employees & management)
5. Physical (inspection of tangible assets e.g. stocktakes)
6. Electronic