Audit Evidence

Auditing and Internal Control 2023

Learning Unit 5
Audit Evidence

• A fundamental concept in the audit

function.
• The auditor should obtain sufficient,
appropriate audit evidence to be able
to draw reasonable conclusions on
which to base the audit opinion.
• Where does audit evidence fit in the
audit process? (Audit strategy>> Audit
plan>> Audit programme>> Audit
procedures)

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Sufficient Evidence

• The sufficiency of audit evidence

relates to the quantity of audit
evidence gathered.
• An auditor must evaluate whether
enough evidence has been obtained to
support an opinion. Sufficient
evidence is gathered by performing a
number of procedures on each
account balance or class of
transactions.

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Appropriate Evidence

• Appropriateness relates to the quality,

reliability and relevance of evidence
gathered.
• Look at the hierarchy of the reliability of
audit evidence in next slide.

• Recommended additional reading:

Auditing Fundamentals section
11.5.1 (characteristics of audit
evidence) in chapter 11

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Reliability of Audit Evidence

• Evidence developed by the auditor

himself/herself is the most reliable
source
• Evidence provided by the third party
directly is reasonably reliable.
• Evidence provided by the third party but
passed through the client is less
reliable.
• Evidence generated through the client’s
own system (Pastel) will be more
reliable if internal controls are
effective. 5
Reliability of Audit Evidence

• Evidence provided by the client is the

least reliable as it lacks
independence.
• Written evidence is more reliable than
oral evidence.
• Evidence provided by original
documents is more reliable than
evidence provided by photocopies.

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Relevance of Audit Evidence

• Relevance of audit evidence means

that the evidence is applicable to the
assertion that is being audited

• Examples:
o Completeness of fixed assets,
o Accuracy of revenue amount,
o Rights and obligations of long term
loans

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Is the evidence sufficient and appropriate?

The decision of whether evidence is

sufficient and appropriate is very
subjective as it depends on the auditor
but is influenced by the following:
• More evidence from most reliable
source will be gathered where the level
of risk is high (inherent and control risks)
• The materiality of the item/figure being
examined (auditor will need more
evidence for material figure reflecting on
AFS)
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Is the evidence sufficient and appropriate?

• Experience gained during previous

audits (the experience the auditor
gathered previously at the client can assist
in guiding him/her own the focus audit
point and evidence required)
• Results of audit procedures already
conducted (the results of other tests)
• Source and reliability of information
available (if the situation does not allow
the auditor to obtain the most reliable
source he/she will require more evidence
from less reliable sources)
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Is the evidence sufficient and appropriate?

• The persuasiveness (collaboration) of

the audit evidence.
o The evidence gathered from
different sections that agree to one
another may convince the auditor to
conclude the evidence than when
not

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Financial Statement Assertions

• Assertions are the Directors’

presentations / confirmations about the
financial statements to company’s
shareholders.
• For an auditor to successfully conclude
the audit he/she needs to test the
assertions: Occurrence,
Completeness, Accuracy, Valuation,
Cut-off, etc
• Refer to Learning Unit for revision on
Assertions
11
Auditor’s Toolbox

• Recommended additional reading:

Auditing Fundamentals section 11.3
in chapter 11 (what are audit
objectives)

• Toolbox: the auditor has 2 sets of tests

which can be used to gather sufficient
appropriate evidence, namely:
o tests of controls and
o substantive procedures.

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Auditor’s Toolbox

• Tests of controls – used to test whether

the control relating to accounting system
has been complied with or not. Are
performed to determine whether controls
are suitably designed to prevent, detect
or correct material misstatements and
to check whether controls implemented
by the entity were effective throughout
the period being audited.
• Substantive procedures – used to
verify the transactions and balances.

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Audit Procedures

• Inspection – consists of examining

records, documents, tangible assets,
inspecting of the minutes.

• Observation – looking at a process/

procedure being performed by others.

• Inquiry and Confirmation – seeking

information from knowledgeable people
inside and outside the entity.

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Audit Procedures

• Recalculation – checking the

mathematical accuracy of source
documents, accounting records and
performing independent calculations.
• Analytical procedures – analysis of
significant ratios and trends, investigation,
relationships and inconsistency.
• Re-performance – auditor’s independent
execution of procedures/ controls that
were originally performed as part of
entity’s internal controls.

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Audit Procedures

Recommended additional reading: Auditing

Fundamentals
• Section 11.6.3 (Obtaining audit evidence)
• Section 13.3.2 (Test of controls)
• Section 13.3.2.1 (Performing tests of
controls)
• Section 13.3.3 (Substantive procedures)
• Section 13.3.3.4 (Substantive test of details)

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Questions