Lesson 5 - Obtaining audit evidence

Question 1

With reference to the relevant ISA, define what is mean with “appropriateness of audit evidence”.

Answer 1

ISA 500: Audit evidence

Appropriateness of audit evidence - the measure of the quality of audit evidence; that is its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based.

Question 2

With reference to the relevant ISA, define what is mean with “sufficiency of audit evidence”.

Answer 2

ISA 500: Audit evidence

The measure of the quantity of audit evidence. The quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of material misstatement and also by the quality of the audit evidence.

Question 3

What are the three methods available to the auditor in respect to selecting items for testing?

Answer 3

ISA 500: Audit evidence A63

• Selecting all items (100% examination);
• Selecting specific items; and
• Audit sampling

Question 4

What is the objective of the audit in terms of ISA 330: The auditor’s response to assessed risks

Answer 4

The objective of the auditor is to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement, through designing and implementing appropriate responses to those risks.

Question 5

Define what is a substantive procedure.
ISA 330: The auditor’s response to assessed risks

Answer 5

Substantive procedure - An audit procedure designed to detect material misstatements at assertion level. Substantive procedures comprise:
(i) Tests of details; and
(ii) Substantive analytical procedures

Question 6

Define what is a test of controls.
ISA 330: The auditor’s response to assessed risks

Answer 6

Test of controls - An audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting material misstatements at assertion level.

Question 7

Name the two approaches that an auditor may elect to use.

Answer 7

• Combined audit approach: Both test of controls and substantive procedures.
• Substantive procedure approach

Question 8

List at least five overall responses to address the assessed risk of material misstatement at the financial statement level.

Answer 8

ISA 330: The auditor’s response to assessed risks (A1)

• Emphasizing to the engagement team the need to maintain professional skepticism
• Assigning more experienced staff or those with specialized skills
• Providing more supervision
• Incorporating additional elements of unpredictability in the selection of further audit procedures
• Changes to the nature, timing or extent of audit procedures