AUDIT

EVIDENCE
SUBSTANTIVE TESTING
What is audit Evidence?
“THE INFORMATION USED BY THE AUDITOR IN
ARRIVING AT THE CONCLUSIONS ON WHICH THE AUDIT
OPINION IS BASED AND INCLUDES THE INFORMATION
CONTAINED IN THE ACCOUNTING RECORDS
UNDERLYING THE FINANCIAL STATEMENTS AND OTHER
INFORMATION.”
PSA 500 Redrafted
The auditor shall design and perform audit procedures
that are appropriate in the circumstances for the
purpose of obtaining sufficient appropriate audit
evidence.

When designing and performing audit procedures, the

auditor shall consider the relevance and reliability of
the information to be used as audit evidence.
ASSERTIONS
1.Assertions about classes of transactions and
events for the period under audit
2. Assertions about account balances at the period
end
3. Assertions about presentation and disclosure.
Assertions about classes of transactions and events
for the period under audit ( OCACC )

•Occurrence
•Completeness
•Accuracy
•Cutoff
•Classification
Assertions about account balances at
the period end (CREV)

•Existence
•Completeness
•Rights and Obligations
•Valuation and Allocation
Assertions about presentation
and disclosure
• Occurrence and Rights and
Obligations
• Completeness
• Classification & Understandability
• Accuracy and Valuation
Persuasiveness of Evidence
Two determinants:

 Appropriateness
 Sufficiency
A Reliable Evidence…
1. Independence of provider
2.Effectiveness of client’s internal controls
3. Auditor’s direct knowledge (Nature of the
Evidence)
4.Qualification of individuals providing the
information
5. Form of the evidence
Relationships Among Audit Evidence and
Persuasiveness
Audit Evidence Decisions
Audit procedures and timing
Sample size and items to select
Qualities Affecting Persuasiveness
of Evidence
Appropriateness
Relevance
Reliability
Independence of provider
Effectiveness of internal controls
Auditor's direct knowledge
Qualifications of provider
Objectivity of evidence
Timeliness
When procedures are performed
Portion of period being audited
Sufficiency
Adequate sample size
Selection of proper population items
Persuasiveness and Cost
In making decisions about evidence
for a given audit, both persuasiveness
and cost must be considered.

The auditor’s goal is to obtain a

sufficient amount of appropriate
evidence at the lowest total cost.
 Study Break
1. Which of the following is not a transaction class
audit objective?
A. Existence
B. Occurrence
C. Accuracy
D. Cutoff
A. Existence
 Study Break
2. Which of the following is not an account balance
audit objective?
A. Existence
B. Completeness
C. Classification
D. Rights and Obligations

C. Classification
 Study Break
3. All of the following affect the sufficiency of
audit evidence except:
A. Materiality
B. Risk of Material Misstatement
C. Relevance of Audit Evidence
D. Size and Characteristics of the Population
C. Relevance of Audit Evidence
Objectives of Audit Procedures

• Obtain an understanding of the entity and its

environment
• Test operating effectiveness of controls
• Support assertion or detect material
misstatements
 Types of Audit Procedures

• Inspection of Documents or Records

• Vouching
• Tracing
Types of Audit Procedures

• Inspection of Tangible
Assets
• Reperformance
• Observation • Analytical Procedures
• Inquiry • Computer-Assisted
• Recalculation Audit Techniques
Types of Audit Procedures
• Confirmation (external)
• Positive confirmation
• Negative Confirmation
SUBSTANTIVE TESTING
An audit procedure designed to detect
material misstatements at the assertion
level.
 Study Break
1. The auditor obtains audit evidence to draw reasonable conclusions on which
to base the audit opinion by performing audit procedures to:

a. Obtain an understanding of the entity and its environment, including its

internal control, to assess the risks of material misstatement at the financial
statement and assertion levels.
b. Test the operating effectiveness of controls in preventing, or detecting and
correcting, material misstatements at the assertion level.
c. Detect material misstatements at the assertion level.
d. All of the above.
 Study Break

2. Which of the following audit procedures is used extensively

throughout the audit and often is complementary to performing
other audit procedures?
a. Inspection
b. Observation
c. Inquiry
d. Confirmation
 Study Break

3. ________ involves selecting entries in the accounting records

and inspecting the documentation that served as the basis
for the entries.
A. Vouching
B. Tracing
C. Observation
D. Inquiry
 Study Break

4. This consists of checking the mathematical accuracy of

documents or records.
a. Reperformance
b. Recalculation
c. Confirmation
d. Inspection
 Study Break

5. The principal reason for an independent auditor to gather and

evaluate audit evidence is to
a. Form an opinion on the financial statements.
b. Detect fraud.
c. Evaluate management.
d. Evaluate internal control.
Answer:
1. D
2. C
3. A
4. B
5. A