Gathering and Evaluating Audit Evidence
2. Test of Controls (TOC)
What is an Audit Procedures?
Audit procedures are the processes, techniques, and
methods that auditors perform to obtain audit
evidence, enabling them to conclude the set audit
objective and express their opinion.
Natures of Audit Procedures
In designing the audit procedures to be performed, the
auditor should:
a. Obtain more persuasive audit evidence the higher
the auditor's assessment of risk;
b. Take into account the types of potential
misstatements that could result from the identified
risks and the likelihood and magnitude of potential
misstatement.
c. In an integrated audit, design the testing of controls
to accomplish the objectives of both audits
simultaneously:
(1) To obtain sufficient evidence to support the
auditor's control risk assessments for purposes of the
audit of financial statements; and
(2) To obtain sufficient evidence to support the
auditor's opinion on internal control over financial
reporting as of year-end.
AUDIT PROCEDURES
1. Risk Assessment Procedures (RAPs)
RAPs are procedures which will enable the
auditor to obtain an understanding of the entity
and its environment, including its internal
control, to assess the risks of material
misstatement at the financial statement and
assertion level.
TOC is an audit procedure designed to evaluate
the operating effectiveness of controls in
preventing, or detecting and correcting
material misstatements at assertion level.
3. Substantive Test (ST)
Is an audit procedure designed to detect
material misstatements at the assertion level.
Substantive procedures comprises:
a. Tests of details (of classes of
transactions, account balances, and
disclosures), and
b. Substantive analytical procedures
1. Inspection of Records or Documents
It consists of examining records or documents,
whether internal or external, in paper form, electronic
form, or other media.
Types of Documents:
a. Internal-generated and maintained within the entity
b. External
✓ Originating within but circulated outside
✓ Originating outside but included in the
client's accounting records
Directional Testing:
a. Vouching - selecting an item for testing from the
records to underlying documents (addresses existence
issues)
b. Tracing - selecting an item of transaction and
following it into the records (addresses completeness
issues)

2. Inspection of Tangible Assets
Inspection of tangible assets consists of physical
examination of the assets such as cash, inventories,
investment securities, and tangible fixed assets.
3. Observation
It consists of looking at a process or procedure being
performed by others.
✓ The plausibility and predictability of relationship
being tested
✓ Precision of the expectation and rigor of the
investigation
Auditing Procedures and Assertions
Audit assertions can provide auditors the clues on
potential misstatement that may occur on the financial
statements

4. Inquiry
Class of Transaction Account Balances
It consists of seeking information of knowledgeable
persons, both financial and non-financial, throughout Occurrence Existence
the entity or outside the entity. Completeness Rights and obligations
Accuracy Completeness
5. Confirmation Cut-off Valuation and
Classification allocation
It is specific type of inquiry that is the process of
obtaining a representation of information of an
existing condition directly from a third party.
Present Disclosure
6. Recalculation
Occurrence
It consists of checking the mathematical accuracy of Completeness
documents or records. Common recalculation Classification and understandability
techniques include footing and cross-footing. Accuracy and valuation

7. Reperformance
AUDIT EVIDENCE
It involves the auditor’s independent execution of AUDIT EVIDENCE
procedures or controls that were originally performed
as part of the entity’s internal control.
❑ Is the information collected by an auditor to
This can be performed manually or through the use of ascertain the accuracy and compliance of a company’s
computer assisted auditing techniques (CAATs). If financial statement.
properly done, information obtained is regarded as
highly reliable. ❑ It comprise source documents and accounting
records underlying the financial statements and
8. Analytical Procedures corroborating information from other sources.
Analytical procedures consist of evaluations of Examples:
financial information made by a study of plausible ▪ Bank accounts
relationships among both financial and non-financial
▪ Managements accounts
data.
▪ Payrolls
The reliability of these procedures is a function of: ▪ Banks statements
✓ The availability and reliability of data used in the ▪ Invoices
calculations ▪ Receipts
Nature and Significance of Audit Evidence ❑ They can be categorized as follows:

❑ Nature of audit evidence refers to the form of 1. Existence

evidence you are looking at during the audit. 2. Rights & obligations
❑ The reliability of audit evidence is typically 3. Occurrence
influenced by the source and nature of information
4. Completeness
obtained.
5. Valuation
Objective of auditor when gathering
6. Measurement
evidence
7. Presentation & disclosures
The auditor designs and performs audit procedure in
8. Validity and authorization
order to gather audit evidence. Such evidence will
enable the auditor to have a basis in arriving at the
conclusions on which the audit opinion is based. Types of Audit Evidence
Objective Physical Examination To verify existence

The auditor should obtain sufficient and appropriate letters signed by client
Confirmations
audit evidence to be able to draw reasonable but received by
conclusions on which to base the audit opinion. auditor.
Documentary Evidence An internal or external
❑ Sufficiency is the measure of quantity of audit documents
evidence. Analytical Procedures Comparison of
The quantity of the audit evidence is affected by recorded amounts

a. the auditor’s assessment of the risks of

material misstatement; and
b. the quality of such audit evidence.
❑ Appropriateness is the measure of the quality of
audit evidence; that is, its;
a. Relevance of the evidence
b. Reliability of the evidence
Financial Statement Assertions
The use of assertions in obtaining evidence
❑ Management is responsible for the fair presentation
of the financial statements that reflect the nature and
operations of the entity.
What are Audit Working Papers?
Audit working papers are used to document the
information gathered during an audit. They provide
evidence that sufficient information was obtained by
an auditor to support his or her opinion regarding the
underlying financial statements.
PURPOSE
Auditors are required, as per standard, to make sure
that all are sufficient and appropriate audit documents
are obtained, and they could prove this to the relevant
parties by documenting, recording, and keeping audit
working papers.

❑ Assertions are the representation of the

management, implicitly or explicitly, in the financial
statements.
TYPES OF WORKING PAPERS
o Permanent Audit is an audit file that auditors
keep for continuing audit engagements. This
file usually includes documents that auditors
use continuously.
o File Current Audit File is a file that stores
information related to a specific engagement.

OWNERSHIP AND CUSTODY

The auditor is the owner of the working papers. The
auditor's ownership rights, on the other hand, are
constrained by the auditor's profession.
Rule 301 of the AICPA’S Code of Professional Conduct
stated that “a member in public practice shall not
disclose any confidential client information without
the specific consent of the client,”

CONTENTS OF WORKING PAPER

Working papers ordinarily should include
documentation showing that—
● The work has been adequately planned and
supervised, indicating observance of the first standard
of field work.
● A sufficient understanding of internal control has
been obtained to plan the audit and to determine the
nature, timing, and extent of tests to be performed.
● The audit evidence obtained, the auditing procedures
applied, and the testing performed have provided
sufficient competent evidential matter to afford a
reasonable basis for an opinion, indicating observance
of the third standard of field work.