AUDIT EVIDENCE AND

DOCUMENTATION

Jan Michael D. Maglinao

 APPLICABLE STANDARD

PSA 500 – Audit Evidence (starting December 15, 2009 onwards)

PSA 501 – Audit Evidence – Specific Considerations for Selected

Items (starting December 15, 2009 onwards)
 WHAT IS AUDIT EVIDENCE?

All information used as basis for the auditor’s opinion.

Includes:
1. Underlying accounting records (journal entries, SL, GL, supporting
documents, etc.)

2. Other information (minutes of the meeting, benchmarking, inventory

observation checklist, etc.)
THE RISK-BASED AUDIT PROCESS
Risk of
Material Detection Risk
Misstatement (DR)
(RoMM)

Conclusion
Risk Risk
and
Assessment Response
Reporting

Inherent Risk
Evidence Gathering
Control Risk
 AUDIT PROCEDURES

• Inquiry – consists of seeking information of knowledgeable

persons inside or outside the entity.

• Inspection – consists of examining records, documents, or tangible

assets.

• Observation – consists of looking at a process or procedure being

performed by others.
 AUDIT PROCEDURES
• Analytical Procedures – analysis of significant ratios and trends
including the resulting investigation of fluctuations and relationships
that are inconsistent with auditor’s expectations.

• Reperformance – involves the auditor’s independent execution of

controls performed within the entity.

• External Confirmation – direct communication from a third party

• Recalculation – checking the mathematical accuracy of documents,

records, etc.
THE TRIFECTA OF AUDIT PROCEDURES

• Performed all through-

Inquiry out the audit (RAP,
Evidence-gathering –
ToC and SP, Completion)
Inspection

Observation
RISK ASSESSMENT PROCEDURES

• To obtain an understanding of the

Inquiry
entity and its environment and
Inspection
measure the level of risk.
Observation • Level of risk determines the nature,
timing, and extent of evidence-
gathering.

Analytical Procedures
EVIDENCE GATHERING – TESTS OF
CONTROL
• To test the operating effectiveness of
Inquiry
internal controls.
Inspection
• Effective IC = Less SP
Observation
• Ineffective IC = More SP

• ToC is required only if auditor

intends to rely on the IC, or SP alone
Reperformance cannot provide SAAE.
 Does the
Understand IC Perform ToC
auditor
(Design and (Operating
Implementation) Effective intend to rely Yes Effectiveness)
on IC?

Ineffective

Purely
substantive Effective
No
procedures?

No Ineffective
Yes

More SP Less SP
EVIDENCE GATHERING – SUBSTANTIVE
PROCEDURES
• To detect material misstatements.
Inquiry
• Test of details of transactions,
Inspection
balances and P&D (Records vs.
Observation Supporting Documents)

• Substantive analytics (Records vs.

Auditor’s Expectation)
Analytical Procedures

External Confirmation • Vouching and Tracing

Recalculation
 DIRECTION OF TESTING
Existence / Occurrence

Overstatement

Assets / Income

Record Support

Completeness

Understatement

Liabilities / Expenses
SUFFICIENT AND APPROPRIATE AUDIT
EVIDENCE (SAAE)
Audit Evidence

Sufficient Appropriate

Quantity Quality

ROMM Quality Relevance Reliability

 SUFFICIENCY OF AUDIT EVIDENCE

• ROMM – Direct

• Quality – Inverse

• Extent: All items (100% testing) ,

Specific items (non-representative) ,
and Audit sampling (representative)

• More evidence does not necessarily

mean better.
 APPROPRIATENESS OF AUDIT
EVIDENCE
• Relevance – Does it contribute
to the auditor’s conclusion?
(purpose)

• Reliability – Is it a valid and

reliable evidence? (source)
 FINANCIAL STATEMENT ASSERTIONS

• Classes of transactions and

COCAC
events

• Account Balances RCEV

• Presentation and Disclosure COCA

 ASSERTIONS – CLASSES OF
TRANSACTIONS AND EVENTS
• Completeness

• Occurrence

• Classification

• Accuracy

• Cut-off

COCAC
 ASSERTIONS – ACCOUNT BALANCES

• Rights and obligations

• Completeness

• Existence

• Valuation and allocation

RCEV
 ASSERTIONS – PRESENTATION AND
DISCLOSURE
• Completeness Income Statement
• Occurrence and rights and Balance Sheet
obligations Cash Flows
Changes in Equity
• Classification and
Notes to F/S
understandability

• Accuracy and valuation

COCA
 MORE RELIABLE EVIDENCE

• Independent sources

• Effective internal controls

• Obtained directly

• Documentary

• Original documents
 AUDIT
DOCUMENTATION
 APPLICABLE STANDARD

PSA 230 – Audit Documentation, (starting December 15, 2009

onwards)
 WHAT IS AUDIT DOCUMENTATION?

A record of:

1. Audit procedures performed

2. Relevant audit evidence obtained (sufficient and appropriate)

3. Conclusions that the auditor reached

Audit Documentation = Audit Working Papers / Audit Workpapers

 RESPONSIBILITY FOR
DOCUMENTATION

Financial Accounting
Management
Statements Records

Auditor’s
Auditors Audit
Report Documentation
MEDIUM OF DOCUMENTATION

Paper Electronic

Audit File
 MAIN PURPOSE OF DOCUMENTATION

• Evidence of the auditor’s basis for a conclusion about the

achievement of the overall objectives of the auditor.

• Evidence that the audit was planned and performed in accordance

with PSAs and applicable legal and regulatory requirements.
 OTHER PURPOSES OF
DOCUMENTATION
• Planning and performance of audit

• Review and supervision

• Accountability

• Reference for future audits

• QC inspections (internal/external)
 FORM, CONTENT, AND EXTENT OF
DOCUMENTATION
• Good audit workpapers “can stand by themselves”.
• Client name and period-end
Sign-offs (including dates):
• Working paper title
• Preparer
• Working paper index or reference #

• Objectives • Reviewer
• Procedures and tick marks

• Exceptions and resolutions, if any

• Conclusions
 WORKING TRIAL BALANCE

Workpaper Financial statements Audited Balance Unadjusted Adjustments

Account Code Account Name Adjustment Number Audited Balance CY Remarks
reference mapping PY Trial Balance CY Debit Credit
Cash -
Short term investments -
Accounts Receivable -
Allowance for uncollectible accounts -
Prepaid Expenses -
Inventories -
Fixed Assets -
Accumulated Depreciation -
Total Assets - - - - -

• Shows the final account balances for the current and prior year

• Shows a summary of audit adjustments made

 LEAD SCHEDULE

Account Code Account Name Nature/Description of account Prior Year Balance Current Year Balance Difference %change Remarks
100xxx Petty Cash Fund Cash used for small expenses 10,000.00 15,000.00 5,000.00 50% Management decided to increase petty cash fund for the current year.
100xxx Cash in Bank

10,000.00 15,000.00
^PY ^TB

• Shows a detailed breakdown of a specific FSLI

• May highlight accounts with risk of material misstatements

 DISCUSSIONS WITH MANAGEMENT
AND TCWG
• Significant matters (audit adjustments,
internal control, fraud, etc.) should be
documented.

• When and with whom discussed

• Minutes of the meetings

 DEPARTURE FROM A RELEVANT
REQUIREMENT OF PSA
• What are the alternative procedures
performed?

• How does the alternative achieve the

aim of the PSA requirement?

• What are the reasons for departure?

 MATTERS ARISING AFTER THE
AUDITOR’S REPORT DATE
• The circumstances encountered

• The new or additional audit

procedures performed, audit evidence
obtained, and conclusions reached

• Effect on the auditor’s report

• When and whom the changes were

made and reviewed
 AUDIT FILE SIGNIFICANCE

Temporary or current Permanent or continuing

 Temporary / Current Permanent /
Continuing
Significance Current period being Long-term
audited
Examples Current year working Articles of incorporation,
papers, PBC files related long-term debt
to audit procedures, agreements, internal
general and subsidiary control manuals, lease
ledger files, audit agreements, etc.
programs, etc.
AUDIT FILE ORGANIZATION
 AUDIT FILE ASSEMBLY
• Not more than 60 days after the date of
the auditor’s report.

• No additional procedures / conclusion

• Deleting/discarding superseded
documentation

• Sorting, collating, and cross-referencing

workpapers

• Sign-offs
 AUDIT FILE RETENTION

• PSQC 1 – at least 5 years from the

date of the auditor’s report

• SEC, Sarbanes-Oxley Act – at least 7

years from the date of the auditor’s
report
OTHER SPECIFIC DOCUMENTATION
REQUIREMENTS
THANK YOU! 