C2: AUDITING AND

ASSURANCE

Topic
Audit Evidence

Compiled by EmmaChris & G. Bundala

 Audit Evidence

To be covered:
• Overview of Sufficient and Appropriate Audit Evidence (SAAE)
• Procedures for obtaining evidence
• Use of assertions in obtaining evidence
• Relying on the work of others
– Experts
– Internal auditors

Compiled by EmmaChris & G. Bundala

 1. Overview of SAAE
• Audit evidence is the information obtained by the auditor
in arriving at the conclusion in which audit opinion is
based.
• ISA 500: the auditor should obtain sufficient appropriate
audit evidence to be able to draw reasonable conclusions
on which to base the audit opinion.
• The extract from ISA 500 tells us TWO things:
1. Evidence has to be sufficient and appropriate.
2. That the auditors do not have to audit everything because their
conclusion have only to be reasonable not absolute.
• If the auditor is unable to obtain sufficient appropriate
evidence, then he should consider the implications of the
audit report Compiled by EmmaChris & G. Bundala
 1. Overview of SAAE
Sufficiency: The measure of the amount of evidence
gathered (quantity)
Factors to consider in determining
sufficiency are:
i. Risk assessment
ii. Nature of accounting and internal control systems
iii. Materiality of the item
iv. Experience gained during previous audits
v. Results of audit procedures
vi. Sources and reliability of information available

Compiled by EmmaChris & G. Bundala

 1. Overview of SAAE
Appropriateness: The measure of the quality of evidence,
its fitness for purpose. (quality)
Appropriateness is a function of relevance and reliability
Relevance - The evidence gathered must cover the
financial statement assertions
Reliable (if it is not in writing it doesn’t exist)
 External better than internal evidence
 Internal evidence more reliable when controls are effective
 Auditor generated evidence is better than client generated
 Documentary evidence is better than oral
 Original documents more reliable than copies/faxes

Compiled by EmmaChris & G. Bundala

 1. Overview of SAAE
Sources of audit evidence:
Can be derived from within the org or ouside
• Sources of audit evidence include that derived from
within the organisation’s
– Accounting systems
– Accounting records
– Documents
– Management and staff
• And from outside the organisation through:
– Customers, Suppliers
– Lenders
– Professional advisers, etc
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 2. Procedures for obtaining evidence
Audit evidence is obtained from appropriate mix of the following
overall procedures:
1. Risk assessment procedures
Procedures to obtain an understanding of the entity and its
environment, including its ICs to assess the RoMM at the FS and
assertion levels
2. Test of controls
Procedures to test the operating effectiveness of controls in
preventing and correcting material misstatements at the assertion
levels
3. Substantive procedures
Procedures to detect material misstatements at the assertion level
and include test of details of classes of transactions, account
balances and disclosures and analytical procedures
Compiled by EmmaChris & G. Bundala
 2. Procedures for obtaining evidence
Audit evidence is obtained from appropriate mix of the following
specific procedures: (AEIOU)
1. Analytical procedures - Evaluation of financial information made by a
study of plausible relationships among financial and non financial data
and the investigation of identified fluctuations and relationships
inconsistent with other information:
2. Enquiry and confirmation directly - seeking information of
knowledgeable persons throughout the entity or outside the entity and
obtaining representations from a third party
3. Inspection - Examining records, documents and tangible assets
4. Observation - Looking at a process or procedure being performed by
others
5. RecalcUlation - Checking the arithmetical accuracy of documents or
records.

Compiled by EmmaChris & G. Bundala

 3. Use of assertions in obtaining evidence

Definition of Assertions
• Implicit statements made by management in preparing financial
statements which state that the financial statements do not contain
any material error or misstatements with regard to assets and
transactions.

• The Assertions in ISA 315 are a series of statements which deal with
the underlying bases on which the financial statements are
prepared and deal with the measurement, presentation and
disclosure of the various elements of financial statements and
related disclosures.

Compiled by EmmaChris & G. Bundala

 3. Use of assertions in obtaining evidence
• ISA 315 splits the assertions into three (3) Categories as follows:
1. Assertions about classes of transaction and events for the period
under review ( Statement of profit or loss and other comprehensive
income)
i. Occurrence- Transactions and events that have been recorded relate
to the company being audited and not to another organisation.
ii. Completeness - All transactions that should have been recorded
have been recorded
iii. Accuracy - Amounts and all other data relating to recorded
transactions have been recorded appropriately
iv. Cut- Off - Transactions and events have been recorded in the
correct accounting period
v. Classification- Transactions and events have been recorded in the
proper accounts (in the books and records)
Compiled by EmmaChris & G. Bundala
 3. Use of assertions in obtaining evidence

2. Assertions about account balances at the period end:

(Statement of financial position)
i. Existence- Assets , liabilities and equity interest
(shareholders) exist.
ii. Rights and obligations -The company holds or controls
the rights to assets, and all liabilities are those of the coy
iii. Completeness - All assets , liabilities and equity interest
that should have been recorded have been recorded
iv. 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 properly recorded
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 3. Use of assertions in obtaining evidence

3. Assertions about presentation and disclosure

i. Occurrence and rights and obligations- Disclosed events,
transactions and other matters have occurred and pertain
to the company.
ii. Completeness- All disclosures that should have been
included in the financial statements have been included
iii. Classification and understandability- Financial
information is appropriately presented and described and
disclosures are clearly expressed
iv. Accuracy and valuation- Financial and other information is
disclosed fairly and at appropriate amounts

Compiled by EmmaChris & G. Bundala

 4. Relying on the work of others
Relying on the work of an Expert ISA 620
• ISA 620 states: The auditor has sole responsibility for the audit opinion
expressed and that responsibility is not reduced by the auditor’s use of
the work of an auditors expert.
• Nonetheless if the auditor using the work of an auditor’s expert
concludes that the work of that expert is adequate for the auditor’s
purpose, the auditor may accept that experts findings or conclusions in
the experts field as appropriate audit evidence.
Who is an Expert?
• ISA 620 defines an expert as: An individual or organisation possessing
expertise in a field other than accounting or auditing, whose work in that
field is used by the auditor to assist the auditor in obtaining sufficient
appropriate audit evidence.
• An auditor’s expert may be either an auditor’s internal expert (who is a
partner or staff including temporary staff of the auditors firm or network
firm) or an auditor’s external expert.
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 4. Relying on the work of others
1. Using the work of an Expert ISA 620
• ISA 620 states: The auditor has sole responsibility for the audit opinion
expressed and that responsibility is not reduced by the auditor’s use of
the work of an auditors expert.
• Nonetheless if the auditor using the work of an auditor’s expert
concludes that the work of that expert is adequate for the auditor’s
purpose, the auditor may accept that experts findings or conclusions in
the experts field as appropriate audit evidence.
Who is an Expert?
• ISA 620 defines an expert as: An individual or organisation possessing
expertise in a field other than accounting or auditing, whose work in that
field is used by the auditor to assist the auditor in obtaining SAAE. Eg
Valuers, Quantity surveyors, Actuaries, Geologists, Stock brokers, Lawyers
 An auditor’s expert may be either an auditor’s internal expert (who is a
partner or staff including temporary staff of the auditors firm or network
firm) or an auditor’s external expert.
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 4. Relying on the work of others
In deciding whether to engage an expert consider:
• Knowledge and ability of audit team
• The risk of material misstatement
• The quantity and quality of other audit evidence which can be
obtained
Factors Which May Influence Auditor To Rely Upon The Expert
• The competence of the expert
• The Experience of the expert
• Independence of the expert
• The auditor also needs to
– Determine nature, scope and objective of experts work for audit purposes
– Evaluate adequacy of that work for audit purposes
In evaluating expert’s work, the auditor should consider:
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 4. Relying on the work of others
In evaluating expert’s work, the auditor should consider:
• The reasonableness of the findings and their consistency with other
evidence
• The significant assumptions made
• The use and accuracy of source data
Auditor must agree on the following issues in writing with the
expert:
• The nature, scope and objectives of expert’s work
• Roles and responsibilities of auditor and the expert
• NTE of communication between the two parties
• The need for an expert to observe confidentiality

Compiled by EmmaChris & G. Bundala

 4. Relying on the work of others
2. Using the Work of Internal Auditors ISA 610
In evaluating internal audit function consider:
• The extent to which the internal audit function’s organizational status and
relevant policies and procedures support the objectivity of the internal
auditors
• The level of competence of the function
• Whether the function applies a systematic and disciplined approach,
including quality control
Considerations when evaluating the work of an internal auditor
• The work was properly planned, performed, supervised, reviewed and
documented.
• Sufficient appropriate evidence had been obtained
• Conclusions reached are appropriate in the circumstances
• Reports prepared by the function are consistent with the results of the
work performed. Compiled by EmmaChris & G. Bundala
 THE END
Question on Audit Evidence

Compiled by EmmaChris & G. Bundala

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