Chapter 6 Edited-New

66
AUDIT EVIDENCE AND

AUDITING PROCEDURE
Learning Outcomes
After studying this chapter, you should be able to:

Describe the types of audit evidence
Explain the quality and adequacy of audit evidence
Discuss the types of audit procedures
Explain the types of audit tests
Discuss the relationship between financial
statement assertions, procedures and audit evidence
FUNDAMENTALS OF AUDITING All Rights Reserved

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Audit Evidence
 Evidence is important for an auditor to draw

conclusion as to whether the financial statements,
as a whole, are free from material misstatement.
 ISA 500 – Audit Evidence

– Enable the auditor to obtain sufficient appropriate
audit evidence to be able to draw reasonable
conclusions on which to base the auditor’s
opinion.

Audit Evidence (cont.)

 Audit evidence
• cumulative in nature
• obtained from audit procedures performed during
the course of an audit.
 Audit evidence: all information used by an auditor

in arriving at the conclusions on which the
auditor’s opinion is based. (ISA 500)

 Accounting records are also an important source of

audit evidence.
 Accounting records (ISA500):

– accounting entries, general and subsidiary
ledgers, journal entries and other adjustments
– supporting records,
– other records

Sufficient and Appropriate Audit
Evidence
 Sufficiency
– the measure of the quantity of audit evidence.
 Appropriateness
– The measure of the quality of audit evidence.
– The quality of all audit evidence is affected by the
relevance and reliability of the information it is
based on.

Evidence (cont.)
 Factors affecting the quantity of audit evidence

needed :
• The risks of misstatement assessed
• The materiality of accounts
• The quality of the evidence
• The size of a population

Evidence (cont.)

Evidence (cont.)

Evidence (cont.)
Relevance
Relevance means that evidence must be
pertinent to the audit objective being tested.
The auditor must perform relevant procedures to
gather relevant information to be used as audit
evidence.

Evidence (cont.)
Reliability
Reliability means the evidence must be
trustworthy.
The reliability of information is influenced by its
source and nature, and how it is obtained.

Evidence (cont.)

Types of Audit Procedures
 Audit procedures are the methodologies or

techniques to obtain and evaluate audit evidence.
– various audit procedures
– often applied in combination

(cont.)

(cont.)
Inspection
Examining records or documents, or
Inspection
inspecting or counting physical assets
Analytical Procedures
ur l
Ob
ed ica
Evaluations or comparisons of financial
es
01
se
oc yt
information through analysis of
Pr nal
rv
plausible relationships among financial
Observation
at
A
io
and non-financial data
07 02
n
The auditor looking at a process or
procedure being performed by others
Re
Reperformance
pe
06 03 Enquiry
rfo
Enqu
iry
rm
The auditor’s independent execution of Enquiry may range from a formal

an
procedures or controls that were written enquiry to an informal oral

ce
originally performed as part of the

entity’s internal control. 05 04 enquiry
o n
Re ati
cal f irm
cu n
lat
io Co
n
Recalculation Confirmation
Checking the mathematical accuracy A form of audit evidence obtained by
of figures in documents or records auditors directly from an independent
or third party outside the client.

(cont.)

Classification of Audit
Procedures
 Risk assessment procedures

Procedures (cont.)
 Further audit procedures
Tests of controls:
The audit procedures designed to evaluate the operating
effectiveness of controls in preventing, or detecting and
correcting, material misstatements at the assertion level
01
Substantive procedures
02 The audit procedures designed to detect
material misstatements at the assertion level.

Procedures (cont.)
 Tests of Controls
Inspection of relevant Observation of the

documentation; entity’s operations;
Reperformance of
Inquiries of appropriate
the application of the
personnel,
control

Procedures (cont.)
 Substantive Procedures
test of details of transactions
test of details of account

balances
test of details of
1 2 3
presentation & disclosures

The Relationship between
Assertions, Audit Procedures
and Types of Evidence

The Relationship between
Assertions, Audit Procedures
and Types of Evidence (cont.)

Conclusion


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66

AUDIT EVIDENCE AND

After studying this chapter, you should be able to:

FUNDAMENTALS OF AUDITING All Rights Reserved

 Evidence is important for an auditor to draw

 ISA 500 – Audit Evidence

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

 Audit evidence: all information used by an auditor

FUNDAMENTALS OF AUDITING All Rights Reserved

 Accounting records are also an important source of

 Accounting records (ISA500):

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

 Factors affecting the quantity of audit evidence

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

 Audit procedures are the methodologies or

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

The auditor’s independent execution of Enquiry may range from a formal

procedures or controls that were written enquiry to an informal oral

originally performed as part of the

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

 Risk assessment procedures

FUNDAMENTALS OF AUDITING All Rights Reserved

 Further audit procedures

FUNDAMENTALS OF AUDITING All Rights Reserved

Inspection of relevant Observation of the

FUNDAMENTALS OF AUDITING All Rights Reserved

test of details of transactions

test of details of account

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

FUNDAMENTALS OF AUDITING All Rights Reserved

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