5.

34
Background theory
Evidence is the information that an auditor uses when
arriving at their opinion on the truth and fairness of the
clients financial report (ASA 500).
There are many types of evidence including :
1. External confirmation
2. Documentary evidence
3. Representation
4. Verbal evidence
5. Computational evidence
6. Physical evidence
7. Electronic evidence

 Susan has been gathering the

following types of evidence :
Verbal evidence: discussing with staff
to examine the duties they perform
and
Computational evidence : ratio
computation and trial reviewing.
Physical evidence: inspection of
physical evidence during tours

 The spreadsheets are reviewed to identify

problem areas for further investigation.
It is also used to calculate ratios, trends which
are used to perform analytical procedures.
For construction business, Susan will use the
information to :
Comparing profitability between periods or
between companies
Analysing physical material movement and
compare with financial data.

5.35
Back ground theory
ASA 600 requires group engagement partner to consider
the work of component partner. A component partner is
an auditor who, at the request of the group engagement
partner, performs work on financial information related
to a component for the group audit (ASA 600 . Para 9b)
The component auditor must meet the same
independence requirement as the engagement partner
(ASA 600. Para A37).
According to ASA 610, external auditor can use the work
of internal auditor as long as it dose not compromise the
objectivity and competence of the internal audit function
and it must be applied in a systematic and discipline
approach (ASA 610. Para 15-16)

 Therefore, in this case Rydell Creek

heads the internal audit at
Securimax thus it dose not meet the
independence requirement for
external audit
As a result, ASA 600 would not allow
their work to be treated as though it
is done by a component auditor.

 However, ASA 610 govern the use of internal audit departments

work at Securimax by external auditor.
Therefore, some function that internal auditor can be used by
external auditor in this case include :
- Testing the operating effectiveness of internal control
- Substantive procedures involving limited judgement
- Tracing transactions though the information system relevant
to financial reporting
- Testing of compliance with regulatory requirements. (ASA 610.
Para A16)
The external auditor also has to include in the audit
documentation an evaluation of the requirement set out in ASA
610 (ASA 610. Para 36)

5.36
Background theory