Chapter 4:

PERFORMING FURTHER AUDIT PROCEDURES

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 AUDIT PROCESS

Plan and design Perform audit Complete the audit &

an audit approach tests issue an audit report

- Audit contract
- Understand internal
control
- Determine the level - Tests of control - Audit completing
of materiality and - Substantive Tests - Audit report
audit risk assessments
- Finalise audit strategy
and audit plan

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 AUDIT CONCEPT

Established
criteria

Auditor: Correspondence
- Competent Audit
Obtain and report
- Independent evaluate
evidence

Information

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 Learning objectives

CL03
• Perform audit procedures to obtain audit evidence,
select audit testing sample
• Identify audit assertions
• Understand and conduct audit process
CL04
• Assess audit evidence to provide an appropriate audit
opinion
• Resolve practical audit scenarios

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 Learning materials

Textbook
[1] Alvin A. Arens, Mark S Beasley, Randal J Elder. (2020). Auditing
and Assurance services – an integrated approach (17th ed.). Pearson
Education.
Other materials
[2] Bộ môn Kiểm toán – Đại học kinh tế TP.HCM. (2019). Kiểm toán.
NXB Lao Động Xã Hội.
[3] Trần Thị Hải Vân & cộng sự. (2016). Tài liệu câu hỏi và Bài tập
Kiểm toán căn bản. Đại học Ngân hàng TP.HCM (Lưu hành nội bộ).

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 Requirement

Students are presumed to have read all the

necessary materials, and
Prepare for questions:
1. What are assertions?
2. Explain the sufficiency and appropriateness of
audit evidence?
3. Give examples of each type of audit procedures.
 Content

4.1. Assertions
4.2.Audit evidence
4.3.Audit procedures
4.4. Audit sampling

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 4.1. Assertions

Assertions – Representations, explicit or otherwise, with

respect to the recognition, measurement, presentation and
disclosure of information in the financial statements which
are inherent in management representing that the financial
statements are prepared in accordance with the applicable
financial reporting framework.
Assertions are used by the auditor to consider the different
types of potential misstatements that may occur when
identifying, assessing and responding to the risks of material
misstatement.
(ISA 315)

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 4.1.1. Assertions about classes of transactions
and events for the period
i. Occurrence—transactions and events that have been
recorded have occurred and pertain to the entity.
ii. Completeness—all transactions and events that should
have been recorded have been recorded.
iii. Accuracy—amounts and other data relating to recorded
transactions and events have been recorded appropriately.
iv. Cut-off—transactions and events have been recorded in the
correct accounting period.
v. Classification—transactions and events have been recorded
in the proper accounts.

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 4.1.2. Assertions about account balances at the
period end

i. Existence—assets, liabilities, and equity interests exist.

ii. Rights and obligations—the entity holds or controls the rights
to assets, and liabilities are the obligations of the entity.
iii.Completeness—all assets, liabilities and equity interests that
should have been recorded have been recorded.
iv.Valuation and allocation—assets, liabilities, and equity
interests are included in the financial statements at
appropriate amounts and any resulting valuation or allocation
adjustments are appropriately recorded.

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4.1.3. Assertions about presentation and disclosure

(i) Occurrence and rights and obligations—disclosed events,

transactions, and other matters have occurred and pertain
to the entity.
(ii) Completeness—all disclosures that should have been
included in the financial statements have been included.
(iii) Classification and understandability—financial
information is appropriately presented and described, and
disclosures are clearly expressed.
(iv) Accuracy and valuation—financial and other information
are disclosed fairly and at appropriate amounts.

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 4.2. Audit evidence

4.2.1. Definitions

Audit evidence – Information used by the auditor in

arriving at the conclusions on which the auditor’s opinion
is based.

Audit evidence includes both information contained in the

accounting records underlying the financial statements and
other information.
(ISA 500)

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 4.2.2. Classification

Audit evidence includes:

 Accounting records,
 External confirmations,
 Stock-take records (with the witness of auditors)
 Calculations of auditors,…

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 4.2.3. Requirements

The auditor shall design and perform audit procedures that are
appropriate in the circumstances for the purpose of obtaining
sufficient appropriate audit evidence.

• Sufficient
• Appropriate

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 4.2.3. Requirements

Appropriateness

• Appropriateness (of audit evidence) – 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.

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 Appropriateness - RELIABILITY

• The reliability of audit evidence is increased when it is

obtained from independent sources outside the entity.

• The reliability of audit evidence that is generated

internally is increased when the related controls,
including those over its preparation and maintenance,
imposed by the entity are effective.

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 Appropriateness - RELIABILITY

• Audit evidence obtained directly by the auditor is more

reliable than audit evidence obtained indirectly or by
inference.
• Audit evidence in documentary form, whether paper,
electronic, or other medium, is more reliable than
evidence obtained orally.
• Audit evidence provided by original documents is more
reliable than audit evidence provided by photocopies or
facsimiles.

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 Appropriateness - RELIABILITY

Inconsistency in, or Doubts over Reliability of, Audit Evidence

• If audit evidence obtained from one source is inconsistent with

that obtained from another; or
• The auditor has doubts over the reliability of information to be
used as audit evidence
=> the auditor shall determine what modifications or additions to
audit procedures are necessary to resolve the matter

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 Appropriateness - RELEVANCE

But it can ensure

inventories are
I witnessed properly evaluated?
the inventory
stock-take

Audit evidence needs to

meet the assertions of FS
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 Appropriateness - RELEVANCE

• The relevance of information to be used as audit evidence may

be affected by the direction of testing.

• A given set of audit procedures may provide audit evidence

that is relevant to certain assertions, but not others.

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 Sufficiency

Sufficiency (of audit evidence) – The measure of the

quantity of audit evidence.

The quantity of the 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.

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 Sufficiency

Sample
size

time

Quantity
of audit
evidence

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4.2.4. Special audit evidence

• Documents from experts.

• Written representation by management.

• Documents from internal auditors

• Documents from other external auditors

• Evidence about related parties

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4.3. Audit procedures

Inspection

Observation

Inquiry

External confirmation

Recalculation

Reperformance

Analytical procedures

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 4.3.1 Inspection
• Examination of records or documents; or
• Physical examination of an asset.

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4.3.1.1 Examination of records or documents

• Examining the financial statements and general and

subsidiary ledgers
• Examining general and subsidiary ledgers and
invoices and other relevant documents
• Examining accounting records and other records.
• Examining documents and documents

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4.3.1.1 Physical inspection of assets

• Be applicable to assets that could be weighed,

measured, counted, ...
• Most often associated with:
- Inventory,
- Tangible assets,
- Cash…

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 4.3.1.1 Observation

Observation consists of looking at a process or procedure

being performed by others.
Observation provides audit evidence about the
performance of a process or procedure, but 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.

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 4.3.1.1 Inquiry

• Inquiry consists of seeking information of

knowledgeable persons, both financial and
non-financial, within the entity or outside the
entity.
§ Used extensively throughout the audit.
§ May range from formal written inquiries to
informal oral inquiries.
§ Evaluating responses to inquiries is an
integral part of the inquiry process.
(ISA/VSA 500.A22)

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4.3.1.1 External confirmation

• An external confirmation represents audit evidence

obtained by the auditor as a direct written response to
the auditor from a third party (the confirming party), in
paper form, or by electronic or other medium.
• External confirmation procedures frequently are
relevant when addressing assertions associated with
certain account balances and their elements.

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 4.3.1.1 Recalculation

• Recalculation consists of checking the

mathematical accuracy of documents or
records.
• Recalculation may be performed manually
or electronically.

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 4.3.1.1 Reperformance

Reperformance involves the auditor’s independent

execution of procedures or controls that were
originally performed as part of the entity’s internal
control.

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 4.3.1.1 Analytical procedures

Analytical procedures consist of evaluations of financial

information through analysis of plausible relationships among
both financial and non-financial data.
Analytical procedures also encompass such investigation as is
necessary of identified fluctuations or relationships that are
inconsistent with other relevant information or that differ
from expected values by a significant amount.

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 Analytical procedures
Analytical methods
• Reasonableness test.
• Ratio Analysis.
• Trend Analysis.

Data for Analytical Procedures

q Current period – previous period Data
q Actual – Plan Data
q Entity – Industry Average Data
q Financial – Non-financial Data

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 Analytical procedures - Ratio Analysis

• Liquidity Ratios

• Profitability ratios

• Leverage ratios

• Asset management ratios

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 Analytical procedures- Trend Analysis

Example: Revenue through the months

Year T1 T2 T3 T4 T5 T6 T7 T8 T9 T10 T11 T12

20x0 310 300 230 240 280 300 310 310 300 330 320 340

20x1 320 310 240 260 260 700 500 360 430 320 340 360

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 4.4. Audit sampling

Audit sampling methods

• Random selection
• Systematic selection
• Monetary Unit Sampling
• Haphazard selection
• Block selection

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 4.4. Audit sampling

• Sampling risk – The risk that the auditor’s conclusion based

on a sample may be different from the conclusion if the
entire population were subjected to the same audit
procedure.

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 4.4. Audit sampling

Sampling risk can lead to two types of erroneous conclusions:

• In the case of a test of controls, that controls are more
effective than they actually are, or in the case of a test of
details, that a material misstatement does not exist when
in fact it does.
• In the case of a test of controls, that controls are less
effective than they actually are, or in the case of a test of
details, that a material misstatement exists when in fact
it does not.

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 4.4. Audit sampling

• Non-sampling risk – The risk that the auditor

reaches an erroneous conclusion for any reason
not related to sampling risk.

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 4.4. Audit sampling

When designing an audit sample, the auditor shall consider

the purpose of the audit procedure and the characteristics
of the population from which the sample will be drawn

• For tests of controls, the auditor makes an assessment of

the expected rate of deviation based on the auditor’s
understanding of the relevant co nt ro l s o r o n t he
examination of a small number of items from the
population.

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 4.4. Audit sampling

For tests of details, the auditor makes an assessment of

the expected misstatement in the population. If the
expected misstatement is high, 100% examination or
use of a large sample size may be appropriate when
performing tests of details.

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 4.4. Audit sampling

In considering the characteristics of the population

from which the sample will be drawn, the auditor may
determine that stratification or value weighted
selection is appropriate.

The decision whether to use a statistical or non-

statistical sampling approach is a matter for the
auditor’s judgment.

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