ACTIVITY 1

ACTIVITY 2
1. Describe the general considerations which auditors must bear in mind
when evaluating evidence? (5marks)

Audit evidence will often not be wholly conclusive. The auditors must
obtain evidence which is sufficient and appropriate to form the basis for their
audit conclusions. The evidence gathered should also be relevant to those
conclusions, and sufficiently reliable to form the basis for the audit opinion. The
auditors must exercise skill and judgment to ensure that evidence is correctly
interpreted and that only valid inferences are drawn from it.

2. Differentiate tests of controls from substantive tests? (5marks)

Test of controls are audit procedures designed to evaluate the operating
effectiveness of controls in preventing or detecting and correcting, material
misstatements at the assertion level. These procedures are used by the auditor to
determine whether the controls put in place by management are effective. If controls
are ineffective this increases the risk that the financial statements are materially
misstated. Test of control can be grouped into inquiry and confirmation, inspection,
observation, and recalculation and reperformance. Substantive tests, on the other
hand, are audit procedures designed to detect material misstatements at the
assertion level. It comprises test of details and substantive analytical procedure. If
material misstatements are detected by the auditors, the financial statements will
need to be amended.