Chapter 4 ISA 500

Question 1

ISA 500

Answer 1

ISA 500, “Audit Evidence,” outlines the auditor’s objective to design and perform audit procedures to obtain sufficient, appropriate audit evidence. This evidence enables the auditor to draw reasonable conclusions on which to base their audit opinion.

1. Sufficient, Appropriate Audit Evidence:
   
   • Sufficiency: Refers to the quantity of audit evidence.
   • Appropriateness: Refers to the quality and reliability of the evidence.
2. Relevance and Reliability:
   
   • Consider the relevance and reliability of the information used as audit evidence.
3. Using Management’s Expert:
   
   • Evaluate Competence, Capabilities, and Objectivity: Assess the expert’s qualifications and impartiality.
   • Understand the Expert’s Work: Gain an understanding of the methods and assumptions used by the expert.
   • Evaluate the Expert’s Report: Determine if the report is appropriate and reliable as audit evidence.
4. Information Produced by the Entity:
   
   • Evaluate whether the information is sufficiently reliable, considering accuracy, completeness, precision, and detail.
5. Selecting Items for Testing:
   
   • Use effective methods for selecting items to test, as detailed in ISA 530 (Audit Sampling).
6. Inconsistent or Doubtful Evidence:
   
   • If evidence from one source is inconsistent with another or if there are doubts about its reliability, consider:
     
     • What additional audit procedures are needed.
     • The effects on other aspects of the audit.

Scenario: An auditor is auditing a company’s financial statements and needs to verify the valuation of inventory.

Steps:
1. Sufficient, Appropriate Evidence: The auditor ensures there is enough evidence (sufficiency) and that it is reliable (appropriateness).
2. Relevance and Reliability: The auditor checks that the inventory records are relevant and reliable.
3. Management’s Expert: If the inventory valuation involves a specialist, the auditor evaluates the expert’s competence and the appropriateness of their report.
4. Entity-Produced Information: The auditor assesses the reliability of the inventory records produced by the company.
5. Selecting Items for Testing: The auditor uses sampling techniques to select inventory items for physical verification.
6. Inconsistent Evidence: If there are discrepancies between physical counts and inventory records, the auditor performs additional procedures to resolve these inconsistencies.

By following these principles, auditors can gather sufficient, appropriate audit evidence to support their conclusions and provide a reliable audit opinion. If you have any further questions or need more detailed examples, feel free to ask!

Source: Conversation with Copilot, 12/25/2024
(1) Chapter 7: Audit evidence. https://kfknowledgebank.kaplan.co.uk/acca/chapter-7-audit-evidence.
(2) Techniques for Gathering Audit Evidence - The Auditor. https://www.theauditoronline.com/techniques-for-gathering-evidence/.
(3) 1052 Audit procedures for obtaining audit evidence - OAG-BVG. https://www.oag-bvg.gc.ca/internet/methodology/performance-audit/manual/1052.shtm.
(4) Audit Evidence - AICPA. https://us.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/au-00326.pdf.
(5) INTERNATIONAL STANDARD ON AUDITING 500 AUDIT EVIDENCE CONTENTS - AASC. https://aasc.org.ph/downloads/isa/publications/PDFs/a022-2010-iaasb-handbook-isa-500.pdf.
(6) Proposed International Standard on Auditing 500 (Revised), Audit …. https://www.iaasb.org/publications/proposed-international-standard-auditing-500-revised-audit-evidence-and-proposed-conforming-and.
(7) ISA 500 Audit Evidence - Wikipedia. https://en.wikipedia.org/wiki/ISA_500_Audit_Evidence.