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Audit Evidence

Why Does an Auditor Need Evidence

Auditors will form an opinion on financial statements Auditors opinion enhancers users confidence in Financial Statements Auditors are paid to do an Audit To Avoid been sued Management Assertions/Financial Statement Assertions
Is the set of information that the preparer of Financial Statements (Management) is providing to another party. Financial statements represent a very complex and interrelated set of assertions. At the most aggregate level, the financial statements include broad assertions such as "total liabilities as at 31 December are $50 million", "total revenue for the year is $9 million" and "net income for the year is $3 million".

Assertions are decomposed to three Categories

Transactions and Events

Accounts

Presentation and Disclosure

Occurrence Completeness Accuracy Authorization Cutoff Classification

Occurrence Existence Rights and obligations Completeness Valuation and Allocation

Rights & Obligations Completeness Valuation & Allocation Classification and Understandability

Quality of Evidence

Evidence It needs to be enough evidence Sufficient Adequate sample size Appropriate

Selection of proper population items-quality

Reliable

Relevant

Source Independent/external/internal Effectiveness of internal controls Medium document/original/copy/oral How directly to auditor Qualifications of provider Knowledge of Business

Audit Procedures
1.1. Inspection of Records 2. Confirmation 3. Analytical procedures

4. Enquiries
5. Recalculation

6. Re performance
7. Observation 8. Physical Examination

Inspection of Records & Tangible Assets


It is the inspection or count by the auditor of a tangible asset/Document. May give direct evidence of existence of an asset share certificate, title deeds, evidence of valuation,cash etc

Confirmation

Information
Cash in bank Accounts receivable Accounts payable

Source
Bank Customer Creditor

The receipt of a written or oral response from an independent third party. Auditor has client request that the third party respond directly to the auditor.

Analytical Procedures As Part of the Planning Process At the Final Review Stage
Audits studies relationships among data. Unusual fluctuations occur when significant difference are not expected but do exist or when significant differences are expected but do not exist. Required during the planning and completion phases on all audits.

Enquiries
It is the obtaining of written or oral information from the client in response to questions from the auditor.

Issue is Material No Other Sources of Evidence Low Quality Evidence

Re Calculation
It involves rechecking a sample of calculations made by the client.

Re-Performance
It is the auditors independent tests of client accounting procedures or controls that were originally done. i.e. test Checking inventory count, IT tools to check debtors ageing

Observation
Auditor witnesses the physical activities of the client

Working Papers

Audit documentation is the principal record of auditing procedures applied, evidence obtained, and conclusions reached by the auditor in the engagement.

Permanent File

Current File
Information relevant for a given audit client for a particular audit year.

Information that is relevant for multiple years on recurring


engagements.

Ownership and access to the working papers are with the auditor. Storage Should be kept for minimum of at least 5years.SOX -7

Types of Files
Permanent Files - information with continuing relevance Information on client Chart of accounts Organization charts Contracts, agreements

Pension plans
Deferred tax and other schedules

Types of Files

Current Files - information specific to current year audit

Audit program
Time budget Working trial balance Lead schedules Detailed schedules

Working Papers
WORKING PAPERS

NATURE

PURPOSE

TYPES

Records of 1. Procedures applied 2. Tests performed 3. Information obtained 4. Conclusions reached

1. 2.

3.

Principle support for auditors report Evidence that examination was made in accordance with GAAS Means for coordinating and supervising the examination

1. 2. 3.

4.

Working trial balance Schedules and analyses Audit memoranda and corroborating info Adjusting and reclassifying entries

What is documenting audit evidence?


The audit work papers include all forms of documentation including: Evidence of planning, including audit programs The client's trial balance and any auditor adjustments Copies of selected internal and external documents including confirmation and representation letters and abstracts of company documents are allowed to do and to put in file

Schedules prepared or obtained by the auditor Auditor memos Results of analytical procedures and tests of client records Auditor analysis of account balance