ADVANCED

Audit Evidence
Tests of controls are performed to obtain audit evidence
about the operating effectiveness of controls preventing,
or detecting and correcting, material misstatements at the
assertion level.
Substantive procedures are audit procedures performed to
detect material misstatements at the assertion level. They
are generally of two types:
• Substantive analytical procedures
• Tests of detail of classes of transactions, account
balances and disclosures
 ISA 330 – Auditor’s Responses to Assessed Risk

Effective Control Environment = higher reliability of evidence

Good Internal Controls= May perform interim audit procedures

Weak Internal Controls= More substantive procedures

ISA 330 – Auditor’s Responses to Assessed Risk

Nature = purpose (test of controls / details)

Nature = Type (inspection / observation / ….. etc)
Timing = when procedure is perfumed

Extent = quantity of procedures (sample)

 ISA 500 – Audit Evidence

Appropriateness (Quality): Relevance & Reliability

Sufficiency (quantity)
 ISA 500 – Audit Evidence

Obtained from audit

Cumulative in nature
procedures
Include information obtained
from elsewhere (previous audit)
Accounting records are
Work of Management important source of
Experts may provide evidence
evidence
Management’s refusal to provide evidence
also constitutes audit evidence
 ISA 500 – Audit Evidence

Inspection observation confirmation Inquiry

Recalculation Re-Performance
Analytical procedures
Inquiry alone does not provide sufficient audit evidence

Auditor obtains reasonable assurance after

obtaining sufficient appropriate audit evidence
 ISA 500 – Audit Evidence

Quantity depends on risk of material misstatement

Quantity also depend quality of audit evidence
Obtaining more evidence does not
compensate for poor quality

Reliability depends on source and nature of evidence

Audit evidence generated by auditor = highest reliability

Audit evidence generated by management = lowest reliability
ISA 500 – Audit Evidence
Financial statement assertions are the representations
by management, explicit or otherwise, that are
embodied in the financial statements, as used by the
auditor to consider the different types of potential
misstatements that may occur.
• 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
recorded transactions and events have been
recorded appropriately.
• Cut-off: transactions and events have been recorded in
the correct accounting period.
• Classification: transactions and events have been
recorded in the proper accounts.
• Existence: assets, liabilities, and equity interests exist.
• Rights and obligations: the entity controls the rights to
assets, and liabilities are the obligations of the entity.
• 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.
ISA 500 – Audit Evidence
ISA 500 – Audit Evidence
ISA 500 – Audit Evidence
Positive confirmation:
• Our auditors, Johnstone, & Gramling, CAs, are making an
annual audit of our financial statements. Please confirm
the balance due our company as of December 31, 2015,
which is shown in our records as $32,012.38.
• Please indicate in the space provided below if the amount
is in agreement with your records. If there are differences,
please provide any information that will assist our auditors
in reconciling the difference.
• The balance due NSG Manufacturing Company of
$32,012.38 as of 12/31/15 is correct with the following
exceptions, (if any):
• ___________________
Negative confirmation:
• Our auditors are making an annual audit of our financial
statements. Our records show an amount of $1,255.78 due
from you as of 12/31/15. If the amount is not correct, please
report any differences directly to our auditors, Johnstone, &
Gramling, CAs, using the space below and the enclosed
return envelope. NO REPLY IS NECESSARY IF THIS
AMOUNT AGREES WITH YOUR RECORDS. PLEASE DO
NOT MAIL PAYMENTS ON ACCOUNT TO OUR AUDITORS.
• The balance due NSG Manufacturing Company of $1,255.78
at 12/31/15 does not agree with our records because (No
reply is necessary if your records agree):
• _____________:
ISA 500 – Audit Evidence
Parts inventory is monitored by the stores E-mail (Store Mgr)
manager. When the quantity of a particular
part falls below re-order level, an e-mail is Part Qty
sent to the procurement department
detailing the part required and the quantity
to order. A copy of the e-mail is filed on the Procurement Dept
store manager’s computer.
Staff in the procurement department check Allocate
the e-mail, allocate the order to an Authorized Supplier
authorized supplier and send the order to
that supplier using Electronic Data EDI
Interchange (EDI). A copy of the EDI order
is filed in the order database by the
computer system. The order is identified by
Unique Order
a unique order number.
In Database
When goods are received, the stores clerk Good Received
confirms that the inventory agrees to the
delivery note and checks the order Del. Note Order
database to ensure that the inventory were DB
in fact ordered by Company. (Delivery is
refused where goods do not have a delivery
Order Database
note.)
updated
The order in the order database is updated
to confirm receipt of goods, and the Inv. System Store
perpetual inventory system updated to show
the receipt of inventory. The physical goods
are added to the parts store and the paper
Paper Order
delivery note is stamped with the order
number and is filed in the goods inwards stamped and filed
department.
The supplier sends a purchase invoice to Purchase invoice
the Company using EDI; invoices are
automatically routed to the accounts Accts DB
department. check

On receipt of the invoice, the accounts

clerk checks the order database, Order Database
matches the invoice details with the updated
database and updates the database to
Purchase
confirm receipt of invoice. The invoice is
DB
added to the purchases database, where
the purchase day book (PDB) and
suppliers individual account in the Supplier’s account
payables ledger are automatically updated
updated.
Ensure that all orders are recorded E-mail (Store Mgr)
and that the order details are correct:
EDI
Obtain a sample of e-mails from the
store manager’s computer. Trace Unique Order in DB
details to the order database.
Good Received
To confirm that all goods ordered were
received: Paper Order
stamped and filed
Obtain a sample of orders in the order
database, record details of the order Purchase invoice
and trace to the paper delivery note
Purchase DB
filed in the goods inwards department.
Supplier’s account
updated
To confirm that goods received were E-mail (Store Mgr)
completely and accurately recorded
in the inventory database: EDI
For the sample of orders above, Unique Order in DB
agree to the inventory database Good Received
To confirm that inventory received
Paper Order
has been recorded in accounting stamped and filed
system and that liabilities are
therefore not understated: Purchase invoice
Obtain a sample of paper delivery Purchase DB store
notes and agree to the order
Supplier’s account
database and inventory database.
updated
To confirm complete and accurate E-mail (Store Mgr)
recording of the inventory liability in
the payables database: EDI

. For a sample of orders in the Unique Order in DB

orders database, agree details to the Good Received
payables ledger database,
Paper Order
confirming details against the
stamped and filed
purchase invoice
Purchase invoice
Purchase DB store
Supplier’s account
updated
To confirm that purchase invoice E-mail (Store Mgr)
details have been correctly recorded
in the payables database: EDI

Within the purchase database, Unique Order in DB

obtain a sample of invoices recorded Good Received
in the purchase day book, agree
Paper Order
details of price and supplier to the
stamped and filed
purchase invoice record in the
database. Purchase invoice
Purchase DB store
Supplier’s account
updated
To confirm that the purchase liability E-mail (Store Mgr)
has been recorded only for goods
actually received: EDI

For a sample of purchase invoices in Unique Order in DB

the purchase day book, agree Good Received
details to the delivery notes for items
Paper Order
on that invoice.
stamped and filed

Purchase invoice
Purchase DB store
Supplier’s account
updated
To confirm that the liability has been E-mail (Store Mgr)
recorded in the correct payables
account: EDI

For the sample of purchase invoices Unique Order in DB

above, agree details to the individual Good Received
payables account in the payables
Paper Order
database.
stamped and filed

Purchase invoice
Purchase DB store
Supplier’s account
updated
To confirm the arithmetical accuracy E-mail (Store Mgr)
of invoices and ensure the company
was charged the correct price for EDI
goods received: Unique Order in DB
For a sample of supplier invoices, Good Received
cast and cross cast invoice price
Paper Order
and quantities confirming price to
stamped and filed
the original order.
Purchase invoice
Purchase DB store
Supplier’s account
updated
To ensure that invoiced goods have E-mail (Store Mgr)
been ordered, confirming the
occurrence assertion: EDI

Select increases in the purchase Unique Order in DB

daybook and vouch to the order Good Received
database.
Paper Order
stamped and filed

Purchase invoice
Purchase DB store
Supplier’s account
updated
To confirm the completeness and E-mail (Store Mgr)
accuracy of the liability recorded in
the general ledger: EDI

Using computer-assisted audit Unique Order in DB

techniques, cast the purchase day Good Received
book and agree total of liability
Paper Order
incurred to the general ledger.
stamped and filed

Purchase invoice
Purchase DB store
Supplier’s account
updated
ISA 500 – Audit Evidence
ISA 500 – Audit Evidence