Audit Evidence An Introduction
Audit Evidence An Introduction
Audit Evidence An Introduction
Accounting
Records
Classes of
Presentation and
Transactions and Account Balances
Disclosure
Events
• Occurrence • Existence • Occurrence and
• Completeness • Rights and Rights and
• Accuracy Obligations Obligations
• Cutoff • Completeness • Completeness
• Classification • Valuation and • Classification and
allocation understandability
• Accuracy and
valuation
Sufficient Appropriate
Evidence
Aspects in obtaining evidence Sources of reliability of audit
Factors
using tests of controls evidence
• Assessment of inherent risks – • Design • Obtained from independent
FS level and AB or class of • operation sources outside the entity are
transaction level more reliable
• Nature of accounting and • Generated internally is more
internal control systems and reliable when the related
the assessment of control risk controls imposed by the entity
• Materiality of item being are effective
examined • Obtained directly by the
• Experience gained during auditor (observation) is more
previous audit reliable than obtained directly
• Results of audit procedures, or by inference (inquiry)
including fraud or error • Exists in documentary form
• Source and reliability of • Provided by original
information available documents is more reliable
than audit evidence provided
by photocopies or facsimiles
Other matters to be
considered in gathering
evidence
• Audit evidence is more persuasive when items
of evidence from different sources or of a
different name are consistent;
• Consider the relationship between the cost of
obtaining audit evidence and the usefulness of
the information obtained;
• Express a qualified opinion or a disclaimer of
opinion if he is unable to gather evidence.
Competence or
Appropriateness of Evidence
• Relevance of the evidence to the particular
assertion being tested
• Objectivity of the evidence
• Qualifications of the provider of evidence
• Timeliness of the evidence
Hierarchy of Evidential
Matter (as to competence)
1. An auditor’s direct personal knowledge obtained through physical
observation and his own mathematical computations (most
competent)
2. Documentary evidence obtained directly from independent
external sources (external)
3. Documentary evidence has originated outside the client’s data
processing system but which has been received and processed by
the client (external-internal)
4. Internal evidence consisting of documents that are produced,
circulated and finally stored within the client’s information system
(low competence)
5. Verbal and written representations given by the client’s officers,
directors, owners and employees (least competent)
Procedures for Obtaining
Audit Evidence
Inspection of records or documents
• Inspection of internal and external documents (documents used by client and its supporting
documents)
• Verification of inventory, cash, fixed tangible assets, securities and notes receivable.
Observation
• Looking at the process or procedures being performed by others
Confirmation
• Obtaining a representation directly from a third party
Inquiry
• Seeking information both financial and non-financial of knowledgeable persons inside and
outside the entity through the client’s representation letter (management’s representation)
Recalculation
• Checking the mathematical accuracy of source documents and accounting records or of
performing independent calculations.
Reperformance
• Independent execution of procedures or controls that were originally performed as a part of
internal control, either manually or using CAATs.
Analytical procedures
• Evaluation of financial information made by a study of plausible relationships among both
financial and non-financial data.
Types of Confirmation
Complete
Factual, accurate and free from clerical and
computational error
Clearly indicates the nature and extent of
work performed
Concise and limited only to essentials
Prepared in a neat and orderly manner to
facilitate review of work done
Audit Sampling
Sampling Audit Sampling Why auditors sample?