AUDIT EVIDENCE

AUDIT EVIDENCE
• Audit evidence is all the information used by the auditor in arriving at the conclusions on
which the auditor's opinion is based.
• Audit evidence includes the information contained in the accounting records underlying the
financial statements and other information gathered by the auditors, such as confirmations
from third parties. Auditors are not expected to look at all the information that might exist.
They will often select samples to test
• The appropriateness of audit evidence is the measure of the quality of audit evidence; that is,
its relevance and its reliability in providing support for the conclusions on which the
auditor's opinion is based.
• The sufficiency of audit evidence is the measure of the quantity of audit evidence. The
quantity of audit evidence needed is affected by the auditor's assessment of the risks of
material misstatement and also by the quality of such audit evidence.
• The quantity of audit evidence required is affected by the level of risk in the area being
audited.
• It is also affected by the quality of evidence obtained. If the evidence is high quality, the
auditor may need less than if it were poor quality. However, obtaining a high quantity of
poor quality evidence will not cancel out its poor quality.
• The ISA requires auditors to consider the relevance and reliability of the information to be
used as audit evidence when designing and performing audit procedures.
 RELEVENCE AND RELIABLE
• Relevance deals with the logical connection with the purpose of the audit procedure and the
assertion under consideration (we look at assertions in the next section). The relevance of
information may be affected by the direction of testing.
• Reliability is influenced by the source and nature of the information, including the controls
over its preparation and maintenance. The following generalisations may help in assessing
the reliability of audit evidence.
 FINANCIAL STATEMENT ASSERTIONS
• 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.
• the auditor must use assertions for classes of transactions and related disclosures (ie
statement of profit or loss) and account balances and related disclosures (ie statement of
financial position) in sufficient detail to form the basis for the assessment of risks of material
misstatement and the design and performance of further audit procedures.
 AUDIT PROCEDURES TO OBTAIN AUDIT
EVIDENCE
• The auditor obtains audit evidence by undertaking audit procedures to do the following.
• Obtain an understanding of the entity and its environment to assess the risks of material
misstatement at the financial statement and assertion levels (risk assessment procedures)
• Test the operating effectiveness of controls in preventing, or detecting and correcting,
material misstatements at the assertion level (tests of controls)
• Detect material misstatements at the assertion level (substantive procedures) The auditor
must always perform risk assessment procedures to provide a satisfactory assessment of risks.
Tests of controls are necessary to test the controls to support the risk assessment, and also
when substantive procedures alone do not provide sufficient appropriate audit evidence.
Substantive procedures must always be carried out for material classes of transactions, account
balances and disclosures.
• Tests of controls are an audit procedure designed to evaluate the operating effectiveness of
controls in preventing, or detecting and correcting, material misstatements at the assertion
level.
• Substantive procedures are audit procedures designed to detect material misstatements at the
assertion level. Substantive procedures comprise:
• (a) Tests of details (of classes of transactions, account balances, and disclosures); and
• (b) Substantive analytical procedures