Evidence

Question 1

Evidence criteria

Answer 1

ISA 500 states that auditors must gain sufficient and appropriate audit evidence to enable them to draw reasonable conclusions on
which they can base the audit opinion.

Question 2

Audit evidence must be

Answer 2

Sufficient - is it enough - assessment of materiality & nature, reliability of management, financial position of company, management bias, strength of evidence

Appropriate - have we got the right kind:
- Reliable: Source - auditor derived, third party, statements made by management
Form - written evidence, original vs copy, oral evidence
- Relevant: Covers one or more financial statement assertions

Question 3

Sufficient evidence

Answer 3

Sufficient evidence relates to the quantity of evidence collected. The auditor needs to decide if they have enough evidence to sign off the audit report. This will be affected by how risky things are. Materiality dictates how much we test. Remember the lower the materiality figure, the more items will be above it and will require testing.

Question 4

Appropriate evidence

Answer 4

Appropriate evidence needs to be reliable and relevant. For reliability we look at where the evidence came from (source) and what sort of evidence it is (form). The most reliable source of evidence is auditor derived from their own tests and procedures. The least reliable is statements or representations made by management.

Question 5

Substantive procedures

Answer 5

Tests of detail:
• Inspection of assets and documents
• Observation of tasks and processes
• Confirmation of balances or transactions
• Recalculation of numbers and balances
• Reperformance of activities
• Inquiry of client management and staff

The size of the sample, and the number of tests performed is a judgement call made by the auditor but is influenced by: 
• Strength of internal controls 
• Materiality of items  
• Size of the population 
• Nature of item 
• Level of audit risk

Substantive analytical procedures can be a useful tool gain evidence over a large volume of data. We might compare current and prior year numbers for reasonableness or perform some detailed ratio analysis.