AUDIT

EVIDENCE:
ISA 500
CHAPTER REVIEW

01
 General principles of 02 Sufficient and appropriate
gathering audit
audit evidence
evidence

The quality of audit 04 Procedures for generating

03 evidence audit evidence

What if the audit evidence is not

05 sufficient?
AUDIT EVIDENCE: ISA 500
“Audit evidence” is all 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. The standard specifically states that “
The Auditor should obtain sufficient and appropriate audit
evidence to be able to draw reasonable conclusions on
which to base the audit opinion” .
General principles of gathering
audit evidence:

• The outcome of an audit is a report,

usually expressing an opinion.
• That report and opinion must be
supportable by the auditor, if
challenged.
• The auditor carries out procedures
known as ʻaudit testsʼ in order to
generate this evidence.
appropriate audit evidence. requirements of ISA 500 are
as follows:
✔ Consider the relevance and reliability of the
information to be used as audit evidence.
✔ When using information produced by the entity
evaluate whether the information is sufficiently reliable
(accurate, complete, precise and detailed)
 Sufficient and appropriate audit evidence

the quantity and the quality of evidence.

• When is there enough evidence to support a

conclusion?
• What is the quality of a given piece of evidence,
and is this sufficient to justify the audit opinion?

 Sufficient relates to the quantity of evidence

 Appropriate relates to the quality
Deciding how much audit evidence is needed?
A quality audit evidence, even if it is in small quantity, might
be enough in some situation i.e. higher the quality lesser the
amount of evidence required, however, a large quantity of
audit evidence cannot be a substitute for inappropriateness of
audit evidence i.e. poor quality of audit evidence cannot be
rectified by merely increasing the amount of evidence.
Sufficient appropriate audit evidence is obtained by applying
appropriate audit procedures keeping the risk assessment in
consideration. It is up to the auditor to decide whether a
certain audit procedure is appropriate enough to obtain
sufficient appropriate evidence in a particular situation.
Sufficient appropriate audit evidence is said to have been
obtained if the audit risk is reduced by the auditor (through
application of audit procedures) to such level that enables the
auditor to draw reasonable inferences on which ultimately
auditor’s opinion will be based.
 Relevance and Reliability

Relevance. The relevance of audit evidence refers to its

relationship to the assertion or to the objective of the
control being tested. The relevance of audit evidence
depends on:
The design of the audit procedure used to test the
assertion or control, in particular whether it is designed
to (1) test the assertion or control directly and (2) test
for understatement or overstatement; and
The timing of the audit procedure used to test the
assertion or control.
Count…..
✔ Reliability. The reliability of evidence depends on the nature and
source of the evidence and the circumstances under which it is
obtained. For example, in general:

✔ Evidence obtained from a knowledgeable source that is independent

of the company is more reliable than evidence obtained only from
internal company sources.

✔ The reliability of information generated internally by the company is

increased when the company's controls over that information are
effective.
✔ Evidence obtained directly by the auditor is more reliable than
evidence obtained indirectly.
✔ Evidence provided by original documents is more reliable than
evidence provided by photocopies or facsimiles, or documents that
have been filmed, digitized, or otherwise converted into electronic
form, the reliability of which depends on the controls over the
conversion and maintenance of those documents.
 Procedures for generating audit
evidence

ISA 500 identifies seven main testing procedures for gathering audit
evidence:
 Inspection (of an item)
 Observation (of a procedure)
 Inquiry (of a personnel)
 External confirmation
 Recalculation
 Re-performance
 Analytical procedures
 What if the audit evidence is not
sufficient?

Obtain more evidence. He may obtain additional audit evidence by

means of:
• More tests of controls: further tests may indicate that the controls are
not as weak as the auditor initially suspected
• More substantive testing procedures. This would be appropriate
where the auditor has concluded that the internal control system is not
functioning well and the audit task is therefore to obtain more evidence
to quantify the potential size of the error in the financial statements
Discuss the problem with the clientʼs senior management or the audit committee,
so that they are aware of the problem.

Indicate the findings from the audit evidence obtained: these should be included
in the management letter prepared by the auditor for the client.

Qualify the audit report. This should only be used as an extreme measure, which
the auditor should only use if other methods fail to resolve the problem.
 UNDERSTANDING THE PROBLEM

MARS VENUS SATURN

Mars is actually a cold It has a beautiful name This is the ringed one.
place. It’s full of iron oxide and is the second planet Saturn is a gas giant,
dust, which gives the from the Sun. It’s even composed mostly of
planet its reddish cast hotter than Mercury hydrogen and helium
 OUR SOLUTIONS

MERCURY VENUS
Mercury is the closest Venus is the second
planet to the Sun planet from the Sun

JUPITER SATURN
It’s the biggest planet in Saturn is the ringed one
the Solar System and a gas giant
MAIN COMPETITORS

MARS MERCURY JUPITER VENUS

 MARKET RESEARCH
EVOLUTION SHARE
15%
65%

55%
8%

1 MERCURY 2 JUPITER
To modify this graph, click on it, follow the link,
change the data and paste the new graph here 3 SATURN 4 NEPTUNE
 ANALYSIS
TOP RATED VALUES
1
Mercury is the closest
01 planet to the Sun

02 2
It’s the biggest planet in
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03
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Venus is the second
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04
4
Saturn is the ringed one
and a gas giant
 THIS IS A MAP
MERCURY
Mercury is the closest
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VENUS
Venus is the second
planet from the Sun

JUPITER
It’s the biggest planet
in the Solar System 15,000,000
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