Process of Assurance: Evidence and Reporting

Mohammad Salahuddin Chowdhury, FCA

Evidence

Audit Evidence

All of the information used by the auditor in arriving at the

conclusions on which audit opinion is based.

Audit evidence includes all the information contained

within the accounting records underlying the financial
statements, and other information gathered by the
auditors, such as confirmation from third parties.
Evidence

Audit Evidence

Two types of test which they will carry out:

(i) tests of controls and
(ii) substantive procedures.
Evidence

Tests of Controls
Performed to obtain audit evidence about the
effectiveness of controls in preventing, or detecting and
correcting material misstatements at the assertion level.

Substantive Procedures
Audit procedures performed to detect material
misstatements at the assertion level. They include:
– Tests of detail of classes of transactions, account
balances and disclosures.
– Substantive analytical procedures.
Evidence

Sufficient and appropriate Audit Evidence

– Sufficiency is the measure of the quantity of audit

evidence.
– Appropriateness is the measure of the quality or
reliability of the audit evidence.
Evidence

Quality of Evidence

The following generalizations may help in assessing the

reliability of audit evidence:
– External
– Auditor
– Entity 
– Written
– Originals
Evidence

Financial Statement Assertions

The financial statements assertions are representations by

management, explicit or otherwise, that are embodied in
the financial statements.

The auditor should use assertions for classes of

transactions, account balances and presentation and
disclosures in sufficient detail to form a basis for the
assessment of risks of material misstatement and the
design and performance of further audit procedures.
Evidence

Assertions Used by the Auditors

Assertions about classes of transactions and events for the period
under audit
– Occurrence
Transactions and events that have been recorded have occurred
and pertain to the entity.
– Completeness
All transactions and events that should have been recorded have
been recorded.
– Accuracy
Amounts and other data relating to the recorded transactions
and events have been recorded appropriately.
– Cut-off
Transactions and events have been recorded in the correct
accounting period.
Evidence

– Classification
Transactions and events have been recorded in the proper
accounts

Assertions about account balances at the period end

– Existence
Assets, liabilities and equity interests exist.
– Rights and Obligations
The entity holds or controls the rights to assets, and
liabilities are the obligations of the entity.
Evidence

– Completeness
All assets, liabilities and equity interests that should have
been recorded have been recorded.
– Valuation and Allocation
Assets, liabilities and equity interests are included in the
financial statements at appropriate amounts and any
resulting valuation or allocation adjustments are
appropriately recorded.
Evidence

Assertion about presentation and disclosure

– Occurrence and Right and Obligations
Disclosed events, transactions and other matters have
occurred and pertain to the entity.
– Completeness
All disclosures that should have been included in the
financial statements have been included.
– Classification and Understandability
Financial information is appropriately presented and
described and disclosures are clearly expressed.
– Accuracy and Valuation
Financial and other information are disclosed fairly and at
appropriate amount.
Evidence

Audit procedures for obtaining Audit Evidence

– Inspection 
– Observation 
– External Confirmation
– Recalculation
– Reperformance
– Analytical Procedures
– Inquiry
Reporting

Basic Elements/ Contents of the Auditor’s Report

The auditor’s report includes the following basic elements

ordinarily in the following layout:
– Title
– Addressee
– Auditor’s Opinion
– Basis for Opinion
– Going Concern
– Key Audit Matters
– Other Information
– Responsibilities for the Financial Statements
Reporting

Basic Elements/ Contents of the Auditor’s Report

The auditor’s report includes the following basic elements

ordinarily in the following layout:

– Auditor’s Responsibilities for the Audit of the Financial

Statements
– Other Reporting Responsibilities
– Name of the Engagement Partner
– Signature of the Auditor
– Auditor’s Address
– Date of the Auditor’s Report
Reporting

Basic Elements/ Contents of the Auditor’s Report

Example:
Reporting

Extract from a report on prospective financial information

We have examined the forecast in accordance with the International Standard on

Assurance Engagements applicable to the examination of prospective financial
information. Management is responsible for the forecast including the assumption
set out in Note X on which it is based.

Based on our examination of the evidence supporting the assumptions, nothing has
come to our attention which causes us to believe that these assumptions do not
provide a reasonable basis for the forecast. Further, in our opinion the forecast is
properly prepared on the basis of the assumptions and is presumed in accordance
with……

Actual results are likely to be different from the forecast since anticipated events
frequently do not occur as expected and the variation may be material.
Any Questions ?