Audit Evidence: Nature, Appropriateness, and Sufficiency, Lecture notes of Auditing

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AUDIT EVIDENCE

Prepared by:

Siti Hajar Asmah bt Ali

INTRODUCTION

• The auditor should obtain sufficient and

appropriate evidence to be able to draw

reasonable conclusions on which to base

the audit opinion.

• Audit evidence is all the information used

by the auditor in arriving at the

conclusions on which the audit opinion is

based, and includes all the information

contained in the accounting records

underlying the f/s & other information

ISA 500 Audit Evidence

THE CONCEPT OF AUDIT EVIDENCE

• (^) Is the measure of quality of AE
• (^) Relevant depends on the audit objective being tested
• (^) Reliability whether AE can be relied upon to signal the true state of an assertion.
  • (^) Independence o f the source of the evidence
  • (^) Effectiveness of internal control
  • (^) Auditor’s direct personal knowledge
  • (^) Documentary evidence
  • (^) Original documents

Appropriateness

of audit evidence

• (^) Is the measure of quantity

of AE

• (^) >risk of material

misstatement, > quantity of

AE

• (^) Inverse relationship between

appropriateness & sufficiency

3. Sufficiency of audit evidence

• (^) Auditor has to determine

whether the reasonableness

of management assertions

can be supported

4. Evaluation of audit evidence

AUDIT PROCEDURES Inspection of records or documents

• (^) Is the auditor’s examination of document, records and registers in the possession of the client.
• (^) The document could either be prepared by the client (internal) or third parties (external)

AUDIT PROCEDURES

• (^) Is the inspection or count by the auditor of the tangible assets.
  • (^) Used to verify the existence of PPE & inventory.
• (^) Auditor has to determine the physical condition. Examination of physical assets

AUDIT PROCEDURES

• (^) Is obtaining oral representation from the client in response to queries by the auditor. Inquiry

AUDIT PROCEDURES

• (^) Representation from third party
• (^) Is the written response received from third party verifying the accuracy of information that was requested by the auditor.
• (^) Highly reliable evidence. Confirmation

AUDIT PROCEDURES

• (^) Rechecking a sample of the computations and transfers of information made by the client during the period of audit. Computation

AUDIT PROCEDURES

• (^) Is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control. Re-performance

TYPES OF ANALYTICAL PROCEDURES

Comparison of current year and

prior year (trend analysis)

Comparison of actual with the

budgeted (reasonableness)

Comparison to industry

information (ratio)

THE END