ARBAMINCH UNIVERSITY

SCHOOL OF POST-GRADUATE CLASS

COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

COURSE TITLE: ADVANCED AUDITING AND AUDITING SERVICE

NEW AUDITING STANDARD: STATEMENT ON AUDITING STANDARDS: AUDIT
EVIDENCE (SAS No:142)
GROUP ASSIGNMENT (1)
PREPARED BY GROUP MEMBERS: ID NO
Abinet Endashaw PRBE/057/12
Endalkachew Befirde PRBE/062/
Robel Bogale PRBE/069/12
Meseret Chane PRBE/068/12
Wudneh Amare PRBE/075/12
Birhan G/Egzahabher PRBE/ 059 /12
Eriste Abayne PRBE/ 024/11

SUBMITTED TO INSTRUCTOR: DANIEL MEHARI (ASS.PROF.)

SUBMISSION DATE MARCH 16,2021.

ARBAMINCHETHIOPIA

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Table of Contents
Part-I: Statement on Auditing Standards: Audit evidence...............................................................2
1. Introduction..............................................................................................................................2
1.1. Scope of This SAS............................................................................................................3
1.2. Objective...........................................................................................................................3
1.3. Definitions.........................................................................................................................4
3. The importance of the issue (SAS NO.142).............................................................................6
4. Events that led to the change of the standards........................................................................12
5. The expected benefits and costs of the SAS NO.142.............................................................14
6. Who is expected to be impacted?...........................................................................................16
Part-II: Summary of Audit studies.................................................................................................18

Part-I: Statement on Auditing Standards: Audit evidence

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 1. Introduction

Statement on Auditing Standards No. 142, Audit Evidence, was issued by the Auditing Standards
Board in July 2020.  It is effective for audits of financial statements for periods ending on or
after December 15, 2022.  Early adoption is not prohibited. SAS No. 142 supersedes Section
500, Audit Evidence, of SAS No. 122, Statements on Auditing Standards: Clarification and
Recodification and amends a variety of other sections of the codification.

The primary objective of SAS No. 142 is to better explain what comprises audit evidence in a
financial statement audit.  It establishes attributes that are taken into account by the auditor when
evaluating information to be used as audit evidence, which assists the auditor with maintaining
professional skepticism.  The auditor should evaluate information to be used as audit evidence by
taking into account the relevance and reliability of the information, including its source.  The
auditor should also evaluate whether such information either corroborates or contradicts
assertions in the financial statements.  

Information must be sufficiently precise and detailed for the auditor’s purpose.  This includes
obtaining audit evidence about the completeness and accuracy of the information, as deemed
necessary.  Evaluation may be enhanced through the use of automated tools and techniques (such
as audit data analytics), which allows for aggregation or disaggregation of information or
comparison of information from multiple sources.  Any modifications or additions to audit
procedures should be made as deemed necessary to resolve inconsistencies in, or doubts about
the reliability of, audit evidence.  This includes when evidence is inconsistent between sources or
results of other audit procedures. The auditor has as an ultimate obligation to evaluate
information obtained, including the results of audit procedures, to inform the auditor’s overall
conclusion about whether sufficient appropriate audit evidence has been obtained to support the
auditor’s report reasonable assurance opinion.

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 1.1. Scope of This SAS
This Statement on Auditing Standards (SAS) explains what constitutes audit evidence in an audit
of financial statements and sets out attributes of information that are taken into account by the
auditor when evaluating information to be used as audit evidence. Taking these attributes into
account assists the auditor in maintaining professional skepticism.

The application of this SAS assists the auditor in fulfilling the auditor’s responsibilities in other
AU-C sections. * This SAS should be read in conjunction with other AU-C sections, including
those that address the auditor’s responsibilities to identify and assess the risks of material
misstatement, design and implement responses to the risks of material misstatement identified
and assessed by the auditor, and form an opinion on the financial statements. In particular, AUC
section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the
Audit Evidence Obtained, requires the auditor to conclude whether sufficient appropriate audit
evidence has been obtained and thereby provides a basis for the auditor’s opinion. . The auditor’s
overall conclusion in accordance with AU-C section 330 about whether sufficient appropriate
audit evidence has been obtained is a matter of professional judgment. Evaluating information to
be used as audit evidence in accordance with this SAS assists the auditor in making that
conclusion. The auditor’s evaluation of information to be used as audit evidence is not a
formulaic exercise and is dependent on the degree to which the attributes of information to be
used as audit evidence influence the auditor’s evaluation.

1.2. Objective
The objective of the auditor is to evaluate information to be used as audit evidence, including the
results of audit procedures, to inform the auditor’s overall conclusion about whether sufficient
appropriate audit evidence has been obtained.

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 1.3. Definitions
For purposes of generally accepted auditing standards (GAAS), the following terms have the
meanings attributed as follows:

Audit Evidence

Audit evidence is information to which audit procedures have been applied, ordinarily during the
course of the current-year audit. Information to be used as audit evidence may also be obtained
by the auditor as part of designing and performing risk assessment procedures in accordance with
AU-C section 315, Understanding the Entity and Its Environment and Assessing the Risks of
Material Misstatement, including from

A. the auditor’s previous experience with the entity and audit procedures performed in
previous audits, when the auditor has evaluated whether such information remains
relevant and reliable as audit evidence for the current audit,
B. the auditor’s procedures regarding acceptance or continuance of the client relationship or
the audit engagement, and
C. when applicable, other engagements performed by the engagement partner for the entity.

A6. The nature of the audit procedures that the auditor performs to use information as audit
evidence may depend on the source of the information and range from simple to extensive audit
procedures. For example, when using information from an external information source, obtaining
the information may be relatively straightforward, and the auditor’s procedures to evaluate that
information would be largely focused on the relevance and reliability of the information,
including its source, in accordance with this SAS. On the other hand, audit procedures to obtain
evidence about the accuracy and completeness of the information, such as tests of controls, may
be necessary when the auditor intends to use information generated internally from the entity’s
general and subsidiary ledgers as audit evidence.

A7. In some cases, the absence of information is used by the auditor and, therefore, also
constitutes audit evidence.15 For example, when considering information regarding
management’s assertions related to the entity’s recorded warranty provision, the absence of sales
returns of the product in question may be audit evidence supporting management’s assertion
about the completeness of the warranty provision.

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A8. As explained in AU-C section 200, reasonable assurance is obtained when the auditor has
obtained sufficient appropriate audit evidence to reduce audit risk (that is, the risk that the
auditor expresses an inappropriate opinion when the financial statements are materially
misstated) to an acceptably low level. conclusion about whether sufficient appropriate audit
evidence has been obtained in accordance with AU-C section 330 is both at the financial
statement level as well as the relevant assertion level. AU-C section 330 requires the auditor to
obtain more persuasive audit evidence the higher the assessment of risk.18 For example,
ordinarily, more persuasive audit evidence is needed to respond to significant risks.
Persuasiveness, therefore, relates to the auditor obtaining appropriate audit evidence that is
sufficient for the auditor to draw reasonable conclusions.
A10. The quantity of audit evidence, in and of itself, is not solely determinative of its
persuasiveness. For example, obtaining more of the same type of audit evidence may not
compensate for its lack of appropriateness. However, as the quality of audit evidence increases,
the need for additional corroborating audit evidence decreases. Depending on the auditor’s
consideration of relevance and reliability, information obtained from a single source may provide
persuasive audit evidence.

2. Responsible group for the development of this standards (SAS NO.142)

Statements on Auditing Standards are issued by the Auditing Standards Board, the senior
technical
body of the AICPA designated to issue pronouncements on auditing matters. The “Compliance
with Standards Rule” (ET sec. 1.310.001) of the AICPA Code of Professional Conduct requires
compliance with these standards in an audit of a non-issuer.

Auditing Standards Board (2019–2020)

Michael J. Santa, Chair. Audrey A. Gramling Brad C., Ames Gaylene R., Hansen Monique,
Booker Tracy W. Harding Patricia Bottomly Jon Heath Jay D. Brodish, Jr. Kristen A. Kociolek
Dora A. Burzenski G. Alan Long Joseph S. Cascio Sara Lord Harry Cohen Marcia L. Marien
Jeanne M. Dee Aaron Saito Lawrence M. Gill

Audit Evidence Task Force

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Jay D. Brodish, Jr., Chair Susan Jones James P. Burton Jeffrey D. Schaberg David Finkelstein
Eric Turner Audrey A. Gramling Alan Young Kristen A. Kociolek are the audit task forces. The
ASB also gratefully acknowledges Sally Ann Bailey, Kathy Healy, and Vanessa Teitelbaum for
their contributions to this project.

AICPA Staff

Robert Dohrer Chief Auditor

Professional Standards and Services Hiram Hasty Associate Director

Audit and Attest Standards Public Accounting Teighlor S. March

Assistant General Counsel Office of General Counsel

3. The importance of the issue (SAS NO.142)

This audit standard specifically used to:

I. Evaluating Information to Be Used as Audit Evidence

The auditor should evaluate information to be used as audit evidence by taking into account

a. The relevance and reliability of the information, including its source, and
b. whether such information corroborates or contradicts assertions in the financial
statements.

The auditor’s evaluation of the information to be used as audit evidence in accordance with

a. Evaluating whether the information is sufficiently precise and detailed for the
auditor’s

In some cases, the auditor may intend to use information obtained from management for other
audit purposes. For example, the auditor may use the performance measures included in the
entity's internal audit function reports, initially obtained for the purpose of evaluating monitoring
activities, in a substantive analytical procedure. In such cases, the appropriateness of this
information to be used as audit evidence is affected by whether the information is sufficiently
precise or detailed for the auditor's purposes.

b. Accuracy and Completeness

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In accordance with paragraph 8, the auditor is required to determine whether it is necessary to
obtain audit evidence about the accuracy and completeness of information to be used as audit
evidence. Examples of this would be the reliability of

 the price and sales volume data produced by the entity used to develop an expectation of
revenue is affected by the accuracy and completeness of the information being used
 a population being tested for a certain characteristic, such as payment authorization, is
affected by the completeness of the population from which items are selected
II. Audit Procedures as a Basis for Concluding on the Sufficiency and Appropriateness
of Audit Evidence

A43. Audit procedures performed on information may include inspection, observation,

confirmation, recalculation, reperformance, and analytical procedures, often in some
combination, in addition to inquiry. These audit procedures may be performed either manually or
using automated tools and techniques. The nature, timing, and extent of audit procedures
performed on information influences the persuasiveness of the audit evidence obtained. For
example, inspection or observation may provide more persuasive audit evidence than inquiry.

A44. As explained further in AU-C section 315 and AU-C section 330, to draw reasonable
conclusions on which to base the auditor’s opinion, audit evidence is obtained by performing the
following:

a. Risk assessment procedures

b. Further audit procedures, which comprise
I. tests of controls, when required by the AU-C sections or when the auditor has chosen
to do so, and
II. substantive procedures, which include tests of details and substantive analytical
procedures an audit procedure.

A45. The auditor may use automated tools and techniques to process, organize, structure, or
present data in a given context in order to generate useful information that can be used as audit
evidence.

A46. An auditor may use automated tools and techniques to perform both a risk assessment
procedure and a substantive procedure concurrently. As illustrated by the concepts in exhibit A, a

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properly designed audit data analytic may be used to perform risk assessment procedures and
may also provide sufficient appropriate audit evidence to address a risk of material misstatement.

A47. The auditor may also use automated tools and techniques to obtain audit evidence about the
operation of the entity’s internal control. For example, if management has controls over the
sequential numbering of sales invoices, the auditor may be able to obtain corroborating audit
evidence about the sequential numbering of sales invoices for the period by using automated
tools and techniques to determine whether any gaps in numbering or duplicates exist, which may
provide audit evidence about the controls over the completeness of invoices issued during the
period.
A48. Some information may be available only in electronic form or only at certain points or
periods in time, which may affect the nature and timing of the audit procedures to be performed.

A49. Certain electronic information may be destroyed or deleted after a specified period of time
(for example, if files are changed and back-up files do not exist). Accordingly, as a result of the
entity’s data retention policies, the auditor may find it necessary to request retention of some
information for the performance of audit procedures at a later point in time or to perform audit
procedures at a time when the information is available.

A50. Some electronic information (for example, records maintained on a distributed ledger, such
as a blockchain) is available on a continuous basis during the audit. In such cases, auditors may
develop audit procedures using automated tools and techniques to obtain information about
transactions on a real-time basis.

Inspection
A51. Inspection involves an examination (being physically present or using remote observation
tools) of an asset or an examination of records or documents, whether internal or external or in
paper form, electronic form, or other media. An example of inspection used as a test of controls
is inspection of records, using manual or automated techniques, for evidence of authorization. An
example of an automated technique for inspection is the use of text-recognition programs to
examine large populations of documents, such as contracts, to identify items for further audit
consideration.

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 Observation
A52. Observation includes looking at a process or procedure being performed by others (for
example, the auditor’s observation of inventory counting by the entity’s personnel or the
performance of control activities).

A53. Remote observation tools (for example, a camera mounted on a drone or a video
transmission) may aid the auditor in performing an inspection or an observation procedure, such
as management’s physical inventory count.

A54. Audit evidence obtained through observation procedures is limited to the point in time at
which the observation takes place and by the fact that the act of being observed may affect how
the process or procedure is performed.

Confirmation
A55. An external confirmation is defined as audit evidence obtained as a direct written response
to the auditor from a third party (the confirming party), either in paper form or by electronic or
other medium (for example, through the auditor’s direct access to information held by a third
party). See AU-C section 505, External Confirmations, for further guidance.

Recalculation

A56. Recalculation consists of testing the mathematical accuracy of information. Recalculation

may be performed manually or using automated tools and techniques.

A57. By using automated tools and techniques, auditors may be able to perform recalculation
procedures on 100 percent of a population, for example, recalculating the gross margin for each
product sold for an entity’s product line.

Reperformance
A58. Reperformance involves the independent execution of procedures or controls by the auditor
that were originally performed as part of the entity’s internal control.

Analytical Procedures

A59. Analytical procedures consist of evaluations of financial information through analysis of

plausible relationships among both financial and nonfinancial data. Analytical procedures also
encompass investigation as necessary of identified fluctuations or relationships that are

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inconsistent with other relevant information or that differ from expected values by a significant
amount. Audit data analytics are techniques that the auditor may use to perform risk assessment
procedures or substantive procedures.
A60. Use of audit data analytics may enable auditors to identify areas that might represent
specific risks relevant to the audit, including the existence of unusual transactions and events,
and amounts, ratios, and trends that warrant investigation. An analytical procedure performed
using audit data analytics may be used to produce a visualization of transactional detail to assist
the auditor in performing risk assessment procedures. For example, a visualization depicting the
composition of a population may be prepared to illustrate the volume and dollar value of items in
the population. Although the auditor may find this technique useful in obtaining information in
order to identify and assess the risks of material misstatement, the information provided may not
be sufficiently precise for the auditor’s purpose of obtaining information to respond to the
assessed risks of material misstatement at the assertion level.
A61. Analytical procedures involve the auditor’s exercise of professional judgment and may be
performed manually or by using automated tools and techniques. For example, the auditor may
manually scan data to identify significant or unusual items to test, which may include the
identification of unusual individual items within account balances or other data through the
reading or analysis of entries in transaction listings, subsidiary ledgers, general ledger control
accounts, adjusting entries, suspense accounts, reconciliations, and other detailed reports for
indications of misstatements that have occurred. The auditor also might use automated tools and
techniques to scan an entire population of transactions and identify those transactions meeting
the auditor’s criteria for a transaction being unusual. The identification of items that exhibit
characteristics of risk of material misstatement through analytical procedures provides the
auditor with audit evidence about those items. Analytical procedures also provide audit evidence
about the items not exhibiting characteristics of risks of material misstatements because the
auditor has determined, exercising professional judgment, that the items not selected for further
audit procedures are less likely to be materially misstated.

Inquiry

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A62. Inquiry consists of seeking information, both financial and nonfinancial, from
knowledgeable persons within the entity or outside the entity. Inquiry is used extensively
throughout the audit, in addition to other audit procedures.

A63. Responses to inquiries may provide the auditor with information that corroborates other
information or with new information. Alternatively, responses might provide information that
contradicts other information that the auditor has obtained (for example, regarding the possibility
of management override of controls). Responses to inquiries may provide a basis for the auditor
to modify or perform additional audit procedures. Evaluating responses to inquiries is an integral
part of the inquiry process.

A64. Inquiries of knowledgeable persons outside the entity do not meet the definition of external
confirmations in accordance with AU-C section 505. However, the responses to inquiries of
persons outside of the entity are considered in accordance with this SAS and may constitute
reliable information to be used as audit evidence.

III. Inconsistencies in, or Doubts About the Reliability of, Audit Evidence

A65. Information obtained from different sources may indicate that an individual item of audit
evidence is not reliable, such as when audit evidence obtained from one source is inconsistent
with that obtained from another. This may be the case when, for example, an external
confirmation is inconsistent with the terms of a debt obligation. AU-C section 230, Audit
Documentation, includes a specific documentation requirement if the auditor identifies
information that is inconsistent with the auditor’s final conclusion regarding a significant finding
or issue.28

A66. In the case of inquiries about management’s intent, the information available to support
management’s intent may be limited.29 AU-C section 580, Written Representations, provides
guidance about obtaining written representations that address management’s intent. Maintaining
professional skepticism is particularly important when corroborative audit evidence is limited to
inquiry. In such circumstances, it may be helpful to consider the consistency, or lack thereof,
between the information obtained through inquiry and management’s history of carrying out its
stated intentions, management’s stated reasons for choosing a course of action, and
management’s ability to pursue a specific course of action

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 4. Events that led to the change of the standards
SAS No. 142 addresses:
 Emerging technologies used by both preparers and auditors.
 The application of professional skepticism.
 The expanding sources of information to be used as audit evidence.
 The accuracy, completeness, relevance, and reliability of audit evidence.

"This substantially revised standard addresses the evaluation of audit evidence and has been
modernized to reflect our current business environment," AICPA Chief Auditor Bob Dohrer,
CPA, CGMA, said in a news release. "It recognizes the use of automated tools and techniques
such as audit data analytics, AI, and remote observation tools to obtain audit evidence." The new
standard is designed to enhance the auditor's assessment of whether sufficient and appropriate
audit evidence has been obtained, and establishes a multifaceted consideration of attributes and
factors in evaluating audit evidence.

Dohrer said the new standard is based on the premise that the auditor should evaluate
information to be used as audit evidence notwithstanding the source from which it is obtained or
the procedures used to obtain the information. "New attributes of information for the auditor to
consider include whether the information is corroborative or contradictory to management
assertions, the authenticity of the evidence, and its susceptibility to bias," Dohrer said. SAS No.
142 takes effect for audits of financial statements for periods ending on or after Dec. 15, 2022.
The standard primarily will amend AU-C Section 500 in the AICPA Professional Standards.

Business continually evolves, as it should. Things change over time, and at some point, you need
to step back and reexamine what that all means. Does what you are doing — and how you are
doing it — make the most sense now? Such introspection led to a modernization of the AICPA’s
standard on audit evidence. Through a comprehensive, multiyear effort, the AICPA’s Auditing
Standards Board (ASB) explored enhancing the relevance of the audit evidence standard, which
was last updated when AU-C Section 500, Audit Evidence, was issued more than 10 years ago.
The board recognized that technological advancements alone would greatly affect business
transactions and processes. It seemed obvious that how the audit profession performed financial
statement audits would need to evolve for stakeholders to get more meaningful information. So,

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in July the ASB issued Statement on Auditing Standards (SAS) No. 142, Audit Evidence. SAS
No. 142 is effective for audits of private company financial statements for periods ending on or
after Dec. 15, 2022, with early implementation permitted.

According to Bob Dohrer, CPA, CGMA, the AICPA’s chief auditor during the project and when
the new standard was issued, the prior standard was developed when audit evidence primarily
was obtained from the audit client’s internal sources. It mostly consisted of paper documents.
Looking at the past 10 years, and even just the past two, auditors could easily see how rapidly
and significantly their clients have evolved how they conduct business. And what could be
considered audit evidence might also come from third parties or other external sources. Of
course, technologies have driven significant business innovations in recent years, and that value
is important to accurately portraying a company’s financial picture. “Social media, big data, and
the internet are just some of the transformational aspects of business that need to be considered
as part of an audit,” Dohrer said. “Auditors availing themselves of these sources of information
is essential to perform high-quality, relevant financial statement audits.”

Modernizing the standard led to substantial changes. For example, SAS No. 142 recognizes the
use of automated tools and techniques, such as audit data analytics, artificial intelligence, and
remote observation tools to obtain audit evidence. Those facets also will enhance audit quality,
another goal of the new standard. “The biggest benefit to audit quality in the near term will
simply be getting auditors to focus on some of the fundamentals of sufficient appropriate audit
evidence — the accuracy, the completeness, susceptibility to bias, and authenticity of
information to be used as audit evidence, and whether that information contradicts or
corroborates management assertions,” Dohrer said. “And it’s all very critical to audit quality now
and in the future.”

Auditors will not see prescribed step-by-step procedures, as the standard is principles-based.
Still, auditors will get a lot of implementation support in the standard. Its requirements take up
about three pages, with the remaining 40-plus pages being application materials, guidance, a
nonauthoritative exhibit, and examples around audit evidence reflecting the realities of current
business processes, data, and financial situations.

The lead time until the effective date is part of the AICPA’s commitment to helping auditors
understand and comply with the new standard. Third-party methodology providers and firms

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with their own methodologies, tools, and guidance will be incorporating the standard into their
materials. Training opportunities and AICPA CPE will be developed for auditors. Firms will
likely work on their audit evidence policies and training during calendar 2020 and into 2021 so
that they are ready in the early part of 2022 for a calendar 2022 effective date. This time frame
would enable firms to apply the standard as they gather evidence at any point throughout 2022 or
if they start interim testing earlier in the year. Finally, the standard was written in a way that
allows it to be as robust and meaningful tomorrow as it is today. The use of principles-based
requirements allows auditors to innovate and evolve with business, while retaining the ability to
meet the fundamental requirements.

5. The expected benefits and costs of the SAS NO.142

All the issue revised or newly implemented standards need to benefit different stakes. Some of
the benefits of this standard is:

 To conform with new technology and methodology of audit evidence collecting

procedures
 To avoid lack of consistency and find cost-effective way to collect and organize evidence
 To avoid an inability to share audit evidence
 Since they (Auditors) struggle with multiple versions of key documents and templates so
this standard will lower such types of hassles.

Since “The objective of the auditor is to evaluate information to be used as audit evidence,
including the results of audit procedures, to inform the auditor’s overall conclusion about
whether sufficient appropriate audit evidence has been obtained.” (SAS No.142)

Audit evidence is important because it is all the information that an auditor gathers to reach his
audit opinion about an organization’s financial statements and/or internal control environment.
Audit evidence is critical to the audit and internal controls process because it allows executives
of public companies to trust the opinions of their auditors. There are a number of laws and
regulations that make it clear that the executives of public companies, not the auditors, are
responsible for establishing and maintaining internal control over financial reporting and
assessing the effectiveness of those internal controls. In addition, stakeholders interested in a
particular business, including banks and investors, rely on this audit opinion to make their

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business or investment decisions regarding the organization. These stakeholders trust the
auditor’s opinion because they count on the fact that the auditor has given his assurance only
after performing quality work. Because stakeholders rely on the auditor’s work, it’s critical that
the auditor base his financial statement opinions on strong audit evidence.

Auditors use a number of audit procedures to obtain audit evidence and they frequently use a
combination of audit procedures. These include observation, inspection, confirmation,
recalculation, reperformance, and analytical procedures, along with asking questions. data
analytics can improve the quality of a financial statement audit by enabling auditors to discover
and analyze patterns, deviations, and inconsistencies. Data analytics can also enable the auditors
to obtain other helpful information in the data that underlies or is related to the subject matter of
an audit. Analytical procedures are a type of audit evidence used during an audit that can indicate
potential issues with an organization’s financial records, which the auditors can then investigate
more completely. Auditors use analytical procedures to evaluate financial information by
analyzing plausible relationships among financial information and nonfinancial information. In
most instances, these relationships should remain consistent over time. If that’s not the case, the
client’s financial records could be incorrect, maybe because of errors or fraudulent financial
reporting activity. Two qualities of audit evidence that are related are sufficiency and the
appropriateness of audit evidence. The sufficiency of audit evidence is the amount or quantity of
audit evidence. The risks of misstatement the auditor assess to determine the quantity of audit
evidence that the auditor needs.

The higher the risks, the more audit evidence the auditor requires. But the higher the quality of
the audit evidence, the less evidence the auditor may need. However, a large amount of audit
evidence will likely not make up for the poor quality of the audit evidence. Appropriateness is
the measure of the quality of the audit evidence, i.e., the reliability and relevance of the audit
evidence. To be appropriate, the audit evidence must be reliable and relevant to support the
conclusions that the auditor uses to form the basis of his audit opinion.

The audit evidence should also be sufficient and appropriate to support and corroborate, or
contradict if necessary, the assertions of the executives as they pertain to specific transaction
classes, account balances, or financial statement disclosures Evidence is crucial to the audit and
internal controls process because it affords signatories a reason to trust any outstanding claims.

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After all, a host of laws and regulations make it clear that the managers of public companies—
not their auditors—are responsible for establishing and maintaining internal control over
financial reporting (ICFR) and regularly assessing the effectiveness of those controls.

6. Who is expected to be impacted?

In every scenario change will impact different bodies which round it. In the amendments of this
standard or statement of audit evidence some groups might be impacted either positively or
negatively. The first group who is affected by the change will be the audit firms. The standard
urges them to employ audit development analytics (ADA) in their professional work. The
implementation of this technology-based auditing activities helps them to make comprehensive
audit with in an efficient time frame. It upgrades the quality of their professional work. The other
body who will be impacted by the amended standard is client of CPA’s. It helps them to gain
quality report at the end of the audit performance that tells the true pictures of their company and
then it increases the reliability of their company. Potential investors and existing investors
therefore can understand easily the company’s current state. The other group to be impacted by
the amendment will be regulatory bodies. The standard urges both the audit firm and client to
accomplish their task with professional care. Therefore, this responsible performance of their
expected activity will decrease the devotion of government on controlling of them and it gets
then high-quality report.

Reference

Audit Standard Bord. (July 2020). Statement on Auditing Standards.

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Part-II: Summary of Academic research
TITLE: DETERMINANTS OF AUDIT QUALITY IN THE NIGERIAN BUSINESS
ENVIRONMENT.

Bibliographic information

The authors: Dr. Augustine O. Enofe, Dr. Chijioke Mgbame, Adeyemi Aderin, Obehioye U.b
Ehi-Oshio

The title of the article: Determinants of Audit Quality in the Nigerian Business Environment

Title of the journal: Research Journal of Finance and Accounting, Vol.4, No.4

Issue date: 2013 Dox: ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)

Determinants of Audit Quality in the Nigerian Business Environment

Introduction

Audit quality is much debatable issue understood and despite the diversity of the concept. Audit
is playing an important role in developing and enhancing the global economy and business firms.
Perception of audit quality can depend very much on whose eyes one looks through. Users of
audit quality like, auditors, regulators and other stakeholders in the financial reporting process
may have very different views as to what constitutes audit quality, which will influence the type
of indicators one might use to assess audit quality. Audit quality as the market assessed joint
probability that the auditor discovers an anomaly in the financial statements, and reveals it. The
user of financial reports may believe that high audit quality means the absence of material
misstatements.

Statements of the problem

The spate of audit failure in the world has brought great disappointment the user of financial
report. audit setting, the challenge of audit tenure and audit quality reporting has not attracted
much empirical study beyond mere anecdotal opinions. The production of a quality audit report

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is perceived to foster engendered confidence in financial reports by the users of those reports.
Investors in particular tend to place better trust in financial statements that are audited; as the
expected independence of the auditor boosts the assurance that important investment decisions
can be made on the thrust of those statements. The increased confidence of these set of financial
statement users tend to attract the inflow of capital which has the long-run effect of creating
growth and development in the business environment. financial statement users make long-term
decisions based on financial statement and desire to have fairly presented figures. This implies
that, credible financial statements those free from fraud and errors are crucial for smooth capital
flow and wealthy economic development.

Purpose of the study

The main objectives of this study are to examined the relationship between audit quality and
engagement related factors such as audit tenure, auditor size and auditor independence and
analyze the relationship between ownership and audit quality.

Methodology

The study is utilized primary data source in the form of questionnaires. The questionnaires were
constructed using the Likert scale, and the researcher distributed questionary randomly to a
cross-section of financial report users like; consisting of investors, financial analysts and credit
institutions. The study uses a sample A sample of one hundred (100) questionary distributed in
the study. and the scope of geographical population was restricted to the South-South
geopolitical zone. The
questionnaires were designed to elicit information from respondents on their perception of
auditor’s contributions to the Nigerian business environment; in relation to the quality of audit
engagements. The data collected were analyzed using dummy variables based on the
respondent’s and the study use model to regressed to analyze the existence of significant
relationships between the dependent (audit quality) and independent variables (determinants of
audit quality).

Finding of the study

After a detailed investigation data and analyzed the researchers result of the study indicate that:
The relationship between audit quality and board independence have found to be significant and

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positive relationship to audit quality. Overall their results suggested that independent directors
encourage the appointment of higher quality auditors to give greater assurance to investors that
company financial statements are fairly presented and To produce a quality audit, the auditor
must possess the required competencies of a professional skill acquired through formal
education, professional certification and participation in training and seminars The relationship
between audit quality and Audit firm size exhibited a nonsignificant positive relationship with
audit quality these audit firm size have positive and nonsignificant effect on audit quality in the
study. Audit tenure exhibited a non-significant negative relationship with audit quality these
because of audit firm tenure impacts audit quality has long been one of the major issues
concerning auditing regulations. that lengthy auditor tenure undermines independence and
objectivity and competence. While ownership structure exhibited a positive non-significant
relationship with audit quality negative relationship between audit tenure and audit quality. The
magnitude of the relationship is however not significant. All of the questions that initially raised
by the researchers are get answers the end of the study.

Conclusions and recommendations

After extensive investigation of the study the researchers conclude and recommend the
followings: Audit quality is an important concept in both public and private sector. It is
necessary to maintain the quality of audit because it helps to minimize the agency problem in
public sector and brings transparency and accountability. And the other and the major the quality
of audit is dependent upon several factors which were explored through this research work. The
qualitative analysis of data of the study shows that budget constraints, promotion and rewards,
trainings, significant effect on the audit quality. The finding of the study has public policy
implications these include:

 A professional and healthy work environment can be a driver of good audit quality.
 The study recommends the sustenance and possible improvements on the non-executive
board composition of organizations. perceived to be borne out of the expectation that the
higher the proportion of non-executive directors, the higher the degree of the board
independence which invariably affects the probability of the board trying to influence the
contents of the financial statements; and directly or indirectly, the outcome of the audit
assignment.

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