Lecture Auditing and assurance services (Second international edition) Chapter 4 Audit evidence and audit documentation

Chapter Four

Audit Evidence
and
Audit
Documentation

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Relationship of Audit
Evidence to the Audit Report
Financial
Financial
statements
statements

Audit
Audit
report
report

Management
Management assertions
assertions
about
about elements
elements of
of
financial

financial statements
statements

Auditor
Auditor reaches
reaches
aa conclusion
conclusion based
based
on
on the
the evidence
evidence

Audit
Audit
procedures
procedures
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Provide
Provide evidence
evidence on
on the
the
fairness
fairness of
of the
the

financial
financial statements
statements


Management Assertions
Occurrence
Occurrence

Completeness
Completeness

Classification
Classification
Assertions about
classes of transactions
and events for the
period under audit
Cut-off
Cut-off

Authorisation
Authorisation

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Accuracy
Accuracy

Management Assertions

Existence
Existence

Completeness
Completeness

Assertions about
end-of-the-period
account balances
Rights
Rights and
and
obligations
obligations
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Valuation
Valuation
and
and allocation
allocation


Management Assertions
Occurrence
Occurrence and

and
rights
rights and
and obligations
obligations

Assertions
about presentation
and disclosure

Accuracy
Accuracy and
and
valuation
valuation

Completeness
Completeness
Classification
Classification and
and
understandability
understandability
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Management Assertions

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Audit Procedures
Specific acts
performed by the auditor
to gather evidence to determine
if specific assertions are
being met.

Risk
Risk assessment
assessment
procedures
procedures

Test
Test of
of
controls
controls

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Substantive
Substantive
procedures
procedures

Audit Procedures

A
A set
set of
of audit
audit procedures
procedures prepared
prepared to
to test
test

assertions
assertions for
for aa component
component of
of the
the financial
financial
statements
statements is
is referred
referred to
to as
as an
an audit
audit plan.
plan.

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Audit Evidence
All
All the
the information,
information, from
from
whatever
whatever source,
source, used
used
by
by the
the auditor
auditor in
in arriving
arriving at
at
the
the conclusions
conclusions on
on which
which the
the
audit
audit opinion
opinion is

is based.
based.

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The Concepts of Audit
Evidence
Nature
Nature of
of audit
audit evidence
evidence

Sufficiency
Sufficiency and
and appropriateness
appropriateness
of
of audit
audit evidence
evidence

Evaluation
Evaluation of
of audit
audit evidence
evidence

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Nature of Audit Evidence
Invoices
Invoices

Records
Records of
of
initial
initial entries
entries and
and
supporting
supporting records
records
General
General
and
and subsidiary
subsidiary
ledgers
ledgers
Adjustments
Adjustments
to
to financial
financial

statements
statements

Spreadsheets
Spreadsheets
supporting
supporting cost
cost
allocations
allocations
Worksheets
Worksheets

Contracts
Contracts

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Other
Other
computations,
computations,
reconciliations,
reconciliations, and
and
disclosures
disclosures

Sufficiency of
Audit Evidence
Sufficiency
Sufficiency is
is aa measure
measure of
of
the
the quantity
quantity of
of audit
audit evidence.
evidence.

Greater
Greater risk
risk of
of
misstatement
misstatement requires
requires
aa higher
higher quantity
quantity
of
of audit
audit evidence.
evidence.
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Higher
Higher quality
quality
audit
audit evidence
evidence results
results
in
in aa lower
lower quantity
quantity
of
of audit
audit evidence.
evidence.


Appropriateness of
Audit Evidence
Relevance
Relevance
Reliability
Reliability

Appropriateness
Appropriateness is
is aa measure
measure
of

of the
the quality
quality of
of audit
audit evidence
evidence..

Knowledgeable
Knowledgeable independent
independent
source
source of
of the
the evidence
evidence
Effectiveness
Effectiveness of
of internal
internal control
control
Auditor’s
Auditor’s direct
direct personal
personal knowledge
knowledge
Documentary
Documentary evidence
evidence
Original
Original documents

documents
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Evaluation of Audit Evidence
Proper
Proper evaluation
evaluation of
of evidence
evidence
requires
requires an
an understanding
understanding of
of the
the
Types
Types of
of evidence
evidence available.
available.
Relative
Relative reliability
reliability of
of available
available evidence.
evidence.

An

An auditor
auditor should
should be
be thorough
thorough in
in searching
searching
for
for evidence
evidence and
and unbiased
unbiased in
in its
its evaluation.
evaluation.
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Audit Procedures for
Obtaining Audit Evidence
Inspection
Inspection
of
of records
records and
and
documents
documents

Inspection
Inspection
of
of tangible
tangible
assets
assets

Observation
Observation

Inquiry
Inquiry

Confirmation
Confirmation

Recalculation
Recalculation

Reperformance
Reperformance

Analytical
Analytical
procedures
procedures

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Scanning
Scanning


Audit Procedures for
Obtaining Audit Evidence
Inspection
Inspection
of
of records
records and
and
documents
documents

Evidence
Evidence obtained
obtained from
from
external
external documents
documents is
is more
more
reliable
reliable than
than evidence
evidence obtained
obtained

from
from internal
internal documents.
documents.

Vouching
(Occurrence)
Source
Documents

Tracing
(Completeness)

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Journal
or
Ledger


Audit Procedures for
Obtaining Audit Evidence
Inspection
Inspection
of
of tangible
tangible
assets
assets

Physical examination of a
tangible asset.

Observation
Observation

The process of watching a
process or procedure being
performed by others.

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Audit Procedures for
Obtaining Audit Evidence
Inquiry
Inquiry

In
In conducting
conducting inquiry,
inquiry, the
the auditor
auditor should:
should:
•• Consider
Consider the
the knowledge,

knowledge, objectivity,
objectivity,
experience,
experience, responsibility,
responsibility, and
and
qualifications
qualifications of
of the
the person
person to
to be
be
questioned.
questioned.
•• Ask
Ask clear,
clear, concise,
concise, and
and relevant
relevant
questions.
questions.
•• Use
Use open
open or
or closed
closed questions
questions
appropriately.

appropriately.
•• Listen
Listen actively
actively and
and effectively.
effectively.
•• Consider
Consider the
the reactions
reactions and
and responses,
responses,
then
then ask
ask follow-up
follow-up questions.
questions.
•• Evaluate
Evaluate the
the response.
response.

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Audit Procedures for
Obtaining Audit Evidence
Confirmation
Confirmation

The process of obtaining a
representation of information of
an existing condition directly
from a third party.

The reliability of evidence obtained through
confirmations is directly affected by factors such as:
• The form of the confirmation.
• Prior experience with the entity.
• The nature of the information being confirmed.
• The intended respondent.
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Audit Procedures for
Obtaining Audit Evidence
Confirmation
Confirmation

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Audit Procedures for
Obtaining Audit Evidence

Recalculation
Recalculation

Determining the
mathematical accuracy of
documents or records.

The auditor’s independent
execution of procedures or
Reperformance
Reperformance
controls that were originally
performed as part of the
internal control system.
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Audit Procedures for
Obtaining Audit Evidence
Analytical
Analytical
procedures
procedures

Scanning
Scanning

Evaluations of financial
information made by a
study of plausible
relationships among both

financial and nonfinancial
data.
Review of accounting data to
identify significant or
unusual items.

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Reliability of Types
of Evidence

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Audit Documentation
The
The auditor’s
auditor’s principal
principal record
record of
of the
the
audit
audit procedures
procedures performed,
performed, evidence
evidence

obtained,
obtained, and
and conclusions
conclusions reached.
reached.
Provides
Provides also
also the
the basis
basis for
for the
the review
review and
and
inspection
inspection of
of the
the quality
quality of
of the
the audit
audit work.
work.

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Content of Audit
Documentation

Audit
Audit documentation
documentation should:
should:

Provide
Provide aa sufficient
sufficient and
and appropriate
appropriate record
record
of
of the
the basis
basis for
for the
the auditor’s
auditor’s report.
report.

Provide
Provide evidence
evidence that
that the
the audit
audit was
was planned
planned
and
and performed

performed in
in accordance
accordance with
with ISAs
ISAs
and
and applicable
applicable legal
legal and
and regulatory
regulatory requirements
requirements..
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