Audit Evidence
By:
Carina Jesslyn T (041811333085)
Kavindra Razik Afif (041811333075)
1.
Nature of Evidence
Let’s start with the first set of slides
Any information used by auditors to
determine whether the information being
audited is stated in accordance with the
established criteria.
Includes information that is highly persuasive, such as the auditor’s
count of marketable securities, and less persuasive information,
such as responses to questions of client employees.
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2.
Audit Evidence Decisions
Determining the appropriate types and amounts of
evidence needed
What to do?
1. Which audit procedures to use
2. What sample size to select for a given procedure
Audit
Program
3. Which items to select from the population
4. When to perform the procedures
3.
Persuasiveness of Evidence
Two determinants are appropriateness and sufficiency
Appropriateness
Relevance of Evidence Independence of provider
Evidence must pertain to or be
relevant to the audit objective
that the auditor is testing before it Effectiveness of client’s internal control
can be appropriate.
Auditor’s direct knowledge
Reliability of Evidence
Refers to the degree to which
evidence can be believable or Qualifications of individuals providing the info
worthy of trust.
Degree of objectivity
Sufficiency
Measured by:
o The sample size chosen by auditor (bigger better)
o The number and quality of procedures performed to meet the audit objective
E.x: Assume in the audit of Jones Computer Parts Co. that the
auditor concludes that there is a high likelihood of obsolete
inventory because of the nature of the client’s industry. The
auditor will sample more inventory items for obsolescence in
this audit than one where the likelihood of obsolescence is low.
4.
Types of Audit Evidence
The auditor can choose from types of evidence
Some Types of Audit Evidence
Inspection Confirmation Analytical Procedures
Auditor’s examination of the The receipt of a direct written Evaluations of financial
client’s documents and records response from a third party information through analysis of
to substantiate the information verifying the accuracy of plausible relationships among
that is, or should be, included information that was requested financial and nonfinancial data.
in the financial statements. by the auditor.
Observation Physical Examination Recalculation
Looking at a process or Inspection or count by the Rechecking a sample of
procedure being performed by auditor of a tangible asset. calculations made by the client.
others.
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5.
Analytical Procedures
Required during the planning and completion phases of
auditing
Purpose of Analytical Procedures
UNDERSTAND CLIENT’S INDUSTRY & INDICATIONS OF POSSIBLE MISSTATEMENTS
BUSINESS
Unusual fluctuations occur when significant
By conducting analytical procedures in which the differences are not expected but do exist, or when
current year’s unaudited info is compared with prior significant differences are expected but do not exist. Be
years’ audited info, the changes represent important careful of misstatements.
trends or specific events, which will influence audit
planning.
CLIENT’S GOING CONCERN PROVIDE EVIDENCE SUPPORTING AN
ACCOUNT BALANCE
For example, if a higher-than-normal ratio of long-term
debt to net worth is combined with a lower-than- The analytical procedure constitutes substantive
average ratio of profits to total assets, a relatively high evidence in support of the related account balances.
risk of financial failure may be indicated.
When to Perform?
REQUIRED IN THE PLANNING PHASE
Part of risk assessment procedures to understand the
client’s business and industry and to assist in DURING TESTING PHASE
determining the nature, extent, and timing of audit
As a substantive test in support of account balances.
procedures.
e.x: the prepaid portion of each insurance policy might
be compared with the same policy for the previous year
as a part of doing tests of prepaid insurance.
REQUIRED IN THE COMPLETION PHASE
As a final review for material misstatements or financial
problems and help the auditor take a final “objective
look” at the audited financial statements.
Some Variety of Analytical Procedures
Compare Balance with Compare Detail of Total Compute Ratios
Last Year’s Balance Balance with Similar Comparison
e.x: Supplies expense, the Detail Last Year The other two’s weakness:
auditor should determine Comparison of details may 1. Fails to consider growth
whether the cause was an take the form of details over or decline in business
increased use of supplies, an time, such as comparing the activity.
error in the account due to a monthly totals for the current
misclassification, or a 2. Relationships of data to
year and preceding year for
misstatement of supplies other data, such as sales
sales, repairs, and other
inventory. to cost of goods sold, are
accounts.
ignored.
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6.
Audit Documentation
Should include all the info deemed necessary to conduct
the audit
Audit Documentation
Is the record of the audit procedures performed, relevant
audit evidence, and conclusions the auditor reached. Usually
called working paper.
A Record of the Evidence
A Basis for Planning the Audit
Include descriptive information about internal
Accumulated and the Results of the
control, a time budget for individual audit areas, Tests
the audit program, and the results of the Identify the items tested, any significant audit
preceding year’s audit. findings or issues, actions taken to address
them, and the basis for the conclusions reached.
Data for Determining the A Basis for Review by Supervisors
Proper Type of Audit Report and Partners
To justify the audit report in a given set Provides evidence that the audit was properly
of circumstances. supervised.
Permanent Files
Data of a historical or continuing nature pertinent to the current audit.
Contains:
﹡ Extracts or copies of such company documents of continuing importance as the
articles of incorporation, bylaws, bond indentures, and contracts.
﹡ Analyses from previous years (e.x: long-term debt, stockholders’ equity accounts,
goodwill, and fixed assets.)
﹡ Information on internal control and assessing control risk. (e.x: organization charts,
flowcharts, questionnaires, etc)
﹡ The results of analytical procedures from previous years’ audits. (e.x: ratios and
percentages computed by the auditor and the total balance or the balance by month for
selected accounts. )
Current Files
All audit documentation applicable to the year under audit.
Contains:
AUDIT PROGRAM
WORKING TRIAL
BALANCE
Types:
• Analysis.
ADJUSTING ENTIRES • Trial balance or list
• Reconcilliation amounts
• Examination of supporting documents
SUPPORTING SCHEDULES
