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bea2004 slides unit 6 audit evidence

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Audit evidenceISA (UK & I) 500 requires the auditor to obtain ‘sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion’For this purpose ‘audit evidence’ is ‘all the information used by the auditor in arriving at the conclusions on which the audit opinion is based’Audit evidenceAs such it includes:• information contained in the accounting records• audit evidence obtained from procedures conducted during the course of the audit• audit evidence obtained from other procedures, for example previous audits, client acceptance procedures etc1Audit evidenceThe standard distinguishes between the ‘sufficiency’ of audit evidence – a measure of the quantity of evidence and ‘appropriateness’ – which reflects the relevance and reliability of the evidence in terms of ‘providing support for, or detecting misstatements in, the classes of transactions, account balances and disclosures and related assertions’Audit evidenceThe standard notes that the reliability of audit evidence is influenced by its source, its nature and the circumstances under which it is obtained – but, with caveats, makes the following general assertions as to the reliability of evidence2Audit evidence• Audit evidence is more reliable when it is obtained from independent sources outside the entity - a supplier’s statement may be stronger evidence of the amount of the relevant liability than the purchase ledger balance- ...

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Nombre de lectures	31
Langue	English

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Audit evidence

ISA (UK & I) 500 requires the auditor to obtain ‘sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion’

For this purpose ‘audit evidence’ is ‘all the information used by the auditor in arriving at the conclusions on which the audit opinion is based’

Audit evidence

As such it includes: • information contained in the accounting records • audit evidence obtained from procedures conducted during the course of the audit • audit evidence obtained from other procedures, for example previous audits, client acceptance procedures etc

Audit evidence

The standard distinguishes between the ‘sufficiency’ of audit evidence a measure of the quantity of evidence and ‘appropriateness’ which reflects the relevance and reliability of the evidence in terms of ‘providing support for, or detecting misstatements in, the classes of transactions, account balances and disclosures and related assertions’

Audit evidence

The standard notes that the reliability of audit evidence is influenced by its source, its nature and the circumstances under which it is obtained but, with caveats, makes the following general assertions as to the reliability of evidence

Audit evidence

• Audit evidence is more reliable when it is obtained from independent sources outside the entity - a supplier’s statement may be stronger evidence of the amount of the relevant liability than the purchase ledger balance - a valuation by an independent, qualified surveyor may be stronger evidence of an appropriate asset valuation than a valuation by management

Audit evidence

• Internally generated audit evidence is more reliable when the relevant internal controls are effective

• Audit evidence obtained directly by the auditor (for example observation of the operation of a control) is more reliable than evidence obtained indirectly (for example enquiry as to the application of a control)

Audit evidence

• Audit evidence is more reliable when it is in documentary form (for example written minutes of meetings are likely to be more reliable than oral recollections)

• Audit evidence in its original form is more likely to be reliable than photocopy based evidence

Audit evidence

The auditor will wish to collect evidence in respect to assertions about classes of transactions and events for the period under audit in terms of:

Audit evidence

• Occurrence the events did occur • Completeness all the events that occurred (and no others) are included • Accuracy the events are recorded appropriately • Cut off the recorded events occurred in the relevant period • Classification the events have been recorded in the correct accounts

Audit evidence

In respect to assertions about account balances at the period end as to:

• Existence assets, liabilities and equity interests exist • Rights and obligations the entity has rights to the assets and the liabilities are obligations of the entity

Audit evidence

• Completeness all assets and liabilities that should have been recorded are recorded • Valuation and recording assets, liabilities and equity interests are included at appropriate amounts and any valuation or allocation adjustments are appropriately recorded

Audit evidence

In respect to assertions about presentation and disclosure

- Here the focus is likely to be on compliance with the presentation and disclosure requirements of company law and accounting standards - Considerations of understandability and comparability are also relevant

Audit procedures

Audit procedures to provide this evidence may include: • Inspection of records and documents • Inspection of tangible assets • Observation • Inquiry • Confirmation • Recalculation and reperformance • Analytical review

Audit procedures

Inspection of records and documents For example • matched invoices and goods inward notes evidence of internal control procedures • title deeds, share certificates, conveyances - evidence of ownership • board minutes may provide evidence as to authorisation, accounting policy considerations, potential liabilities etc

Audit procedures

Inspection of tangible assets this will normally provide evidence as to existence (and to an extent valuation) but not necessarily about ownership

Audit procedures

Observation - this might include attendance at physical stock counts or observation of the performance of specific actual control procedures However observations at a point in time do not guarantee that the control is always operating as observed

Audit procedures

Inquiry may be formal (and result in obtaining written management representations) or informal in terms of seeking explanations from employees etc Inquiry evidence should normally be corroborated by means of other evidence Intentional deception of auditors is an offence

Audit procedures

Confirmation evidence may inter alia relate to direct confirmation by debtors of amounts owed or confirmation by banks of balances held Confirmation evidence may be incomplete and does not necessarily provide evidence as to ability to pay etc (and in rare instances may be fraudulent/collusive)

Audit procedures

Recalculation for example checking the numerical accuracy of the sales ledger or of the make up of payroll figures

Reperformance separate performance by the auditor of client procedures (normally through the use of CAATs (Computer Aided Audit Techniques)

Audit procedures

Analytic procedures (analytic review) this encompasses a variety of procedures and actions

Analytic procedures are important at the planning stage of the audit when they should be incorporated into the overall risk assessment and at the final review stage (ISA (UK & I) 520) but may also be used to provide comfort in terms of substantive testing

Analytic review

These procedures may entail:

• comparison with prior year information • comparison with budgeted information and other management information • cross sectional comparison with competitors, industry averages etc

Analytic review

They may also include consideration of internal relationships within financial information, for example: • the relationship between year end accounts receivable and annual revenue • the relationship between the number of people on the payroll and total payroll expense • monthly variations in payroll expense

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