Audit Evidence

Question 1

The need for audit evidence

Answer 1

An external audit is a “search for evidence” to enable the auditor to express an opinion on whether the financial statements show a “true and fair view”

Audit evidence is all the information used by the auditor in arriving at the conclusions on which the auditors opinion is based

The audit should obtain sufficient appropriate evidence to be able to draw reasonable conclusions on which to base the audit opinion (ISA500)

Question 2

Sufficient appropriate evidence

Answer 2

Sufficient audit evidence is the measure of the quantity of audit evidence - is affected by auditors risk assessment

Appropriate audit evidence is the measure of the quality of audit evidence - the relevance and reliability of evidence in providing support for the auditors conclusions and opinions

Question 3

ISA500 Audit Evidence

Answer 3

Sufficient:
Quality - sufficient to support the audit opinion

Factors to consider are/
Risk assessment
Nature of accounting and internal control systems
Materiality of the item
Experience gained during previous audits
Results of audit procedures
Source and reliability of info available

Then appropriate:
Relevant or reliable:
Relevant is the evidence gathered must cover the financial statements assertions

Reliable is:
External better than internal
Internal more reliable when controls effective
Auditor generated better than clients generated
Documentary better than oral
Original documents more reliable than copies / faxes

Question 4

Sources of audit evidence

Answer 4

Audit evidence is obtained from an appropriate mix of the following types of procedures:

Risk assessment procedures
Tests of controls
Substantive procedures

Question 5

Financial statements assertions

Answer 5

Management is responsible for the preparation of financial statements which should be true and fair

To accomplish this, management makes asserjoN regarding the figures and disclosures in the accounts

The auditor should use assertions for classes of transactions, account balances and disclosures as a basis for:
Assessing the risk of material misstatements
Designing and performing further audit procedures

Question 6

Assertions used by auditors:

Answer 6

Assertions about classes of transactions:

Occurrence 
Completeness
Accuracy 
Cut off
Classification
Presentation

Question 7

Assertions about account balances and related disclosures:

Answer 7

Existence
Rights and obligations 
Completeness
Accuracy, validation and allocation 
Classificatikn 
Presentation

Question 8

Procedures for obtaining audit evidence

Answer 8

Analytical procedures 
Enquiry and confirmation 
Inspection
Observation 
Recalculation
Reperformance of controls

Question 9

Example

Answer 9

Assertion:
Valuation of inventory

Evidence: year end line by line listing from the management clients inventory system
Agreeing a sample of inventories to their purchase invoices
Tracing items to their post year end sales value

Assertion: 
Existence of inventory
Evidence:
Enquiry of clients management
Observation of year- end inventory count

Assertion: 
Completeness of recording of purchases
Evidence: 
Enquiry of clients management 
Reperformance of sequence check of control mechanisms for recording purchase invoices