1. What is audit evidence?

Audit evidence is all information used by the auditor in arriving at the conclusions on which the
opinion is based, and includes the information contained in the accounting records underlying the
financial statements and other information.

2. What are the factors that affect sufficiency and appropriateness of audit evidence?

The auditor’s judgment as to what is sufficient appropriate evidential matter is influenced by

such factors as: The degree of risk of misstatement, materiality of the item in relation to financial
statements, experience gained during the previous audits, results of auditing procedures, and type of
information available.

3. An auditor typically works within economic limits. Explain this statement.

Auditor’s opinion, to be economically useful, must be formed within a reasonable length of time
and at reasonable cost. The auditor decides whether the evidential mater available to him within the
limits of time and cost is sufficient to justify expression of an opinion.

4. What are the generalizations on reliability of audit evidence?

 Independence of the source

 Qualifications of the source
 Internal control
 Nature of evidence
 Form of evidence

5. Explain the relationship between assertions, audit objectives, and audit evidence.

In obtaining evidential matter in support of financial statement assertions, the auditor develops
specific audit objectives considering those assertions. In developing audit objectives, the auditor should
consider the specific circumstances of the entity and afterwards, the auditor considers the type of
evidence to be obtained, and the audit procedures necessary to obtain this evidence.

6. Enumerate, and explain, each audit procedure classified according to purpose and according to
nature.

Audit procedures according to purpose:

 The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit
opinion by performing audit procedures to obtain an understanding of the entity and its
environment, to test the operating effectiveness of controls, and to detect material
misstatements at the assertion level.
 Risk assessment procedures by themselves which are supplemented by further audit procedures
in the form of test controls when necessary, and substantive controls
 Test of controls when the auditor’s risk assessment includes an expectation of the operating
effectiveness of the control, and when substantive procedures alone do not provide sufficient
appropriate audit evidence.
  The auditor plans and performs substantive procedures to be responsive to the related
assessment of the risks of material misstatement….

Audit Procedures according to nature:

 Inspection of records and documents – consists of examining records whether internal or

external, in paper or electronic form or other media
 Inspection of tangible asset – consists of physical examination of the assets
 Direction of the test – important in establishing the assertion being tested by a certain
procedure
 Observation – consists of looking at a process being performed by others
 Inquiry – seeking information of knowledgeable persons both financial and non-financial
 Recalculation – checking the mathematical accuracy of documents or records
 Re-performance – it is the auditor’s independent execution of procedures or controls
 Confirmation – the process of obtaining a representation of information of an existing condition
directly from third party
 Analytical procedures – consists of evaluation of financial information made by a study of
plausible relationships among both financial and non-financial data.
 Other term for audit procedures have been also used in both the professional standards and in
auditing texts.