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SLAuS 500 Audit Evidence04 October 2012

By Nilani De Silva

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Content

Introduction

Concept of audit evidence

Sufficient appropriate audit evidence

The use of assertions

Audit procedures

Compliance with International Standards

Effective date

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Introduction

Purpose of the standard is :

Toestablishstandardsandprovideguidanceon

Whatconstituteauditevidence?

Quantityand

quality

of

audit

evidence

to

be

gathered

Availableauditprocedures

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Auditor should obtain sufficient appropriate audit

evidence to be able to draw reasonable conclusions

on which to base the audit opinion.

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Auditors responsibility with respect to audit evidence

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Recordsofinitialentries,supportingdocs

invoices

contracts

mainledgerandsubsidiaryledgers

Journalentriesandotheradjustmentsnotreflectedin

formalJ/Es

Worksheetssuchascostallocations

computations

reconciliations

disclosures

Minutesofmeetings Confirmations/benchmarkinformation

AnalysisreportsControlmanuals

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What is meant by audit evidence?

Alltheinformationusedbyauditor in

arrivingattheconclusionsonwhichtheaudit

opinionisbased.

Includestheinformationintheaccounting

recordsunderlyingfinancialstatementsand

other

information.

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Quantity

Levelofauditrisk Relevant Reliable

Quality

Sufficient

Howmuch?

Appropriate

Howgood?

Auditevidence

shallbe

Impacts

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Relationship between Audit risk , Quality &

Quantity of audit evidence

Highertherisk higherthe

quantityofauditevidencerequired.

Higherthequality lowerthe

quantityofauditevidencerequired

Merely obtainingmoreaudit

evidencemaynotcompensateits

poorquality. 9

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Higher

AuditRiskHigherQtyofauditevidence

HigherQuality

LowerQuantity

Generalisations about reliability of evidence :

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Morereliablewhenitisobtained fromanIndependentsourceoutsidetheentity.Internally generatedevidencearemorereliable,whencontrolsareeffective.Evidenceobtaineddirectlybytheauditorratherthanindirectlyorbyinference.Writtenevidenceismorereliablethantheothers.

Originaldocumentsofevidenceismorereliablethanthephotocopies.

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When internally produced information is used

following shall be established;

accuracy

and

completeness of the information

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More assurance is obtained through consistent

audit evidence from different sources /different

nature.

Auditor is not expected to obtain all the information

as conclusions can be reached by using sampling.

Necessarily rely on persuasive evidence thanconclusive.

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Management

Assertions

Audit

Objectives

AuditEvidence AuditReport

onFinancial

Statements

Financial

Statements

Audit

Procedures

Relationship of Financial Statement Assertions and the Audit

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Transactionsandevents Occurrence

Completeness

Accuracy

Cutoff

Classification

Accountbalancesatperiodend Existence

Rights&obligations

Completeness

Valuation&allocation

Financial Statement Assertions

Presentationanddisclosure OccurrenceandRights&obligations

Completeness

Classification&understandability

Accuracyandvaluation

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Given set of audit evidence may provide

evidence to certain assertions but not for

others.

Lets look at F/S assertions in bit more detail

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Inventory

Auditprocedure Physicalobservation

Assertionscovered existencenothingelse

Trade receivable

AuditprocedureCheckingsupportings for

subsequentsettlements.

Assertionscoveredexistenceandvaluation,

butnotcutoff.

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Corroborating information obtained from a source

independent of the entity may increase the assurance

obtained from internal sources

Relationship between cost vs. benefit of obtaining

audit evidence is not valid if no alternatives.

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Auditor usually rely on persuasive evidence than

conclusive.

Auditor shall exercise professional skepticism in

evaluating quantity , quality(sufficiency) and

appropriateness of audit evidence to support audit

opinion.

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Audit procedures for obtaining audit evidence

Risk assessment procedures

Test of controls

Substantive procedures

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Inherent

Risk

Control

Risk

Detection

Risk

Audi t Risk

Any mater ial

error at all?

YesCaught by

controls?

NoCaught by

our audit?

No

Wrong opinion

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Obtainingcomfort

Audit procedures for obtaining audit evidence

Inspectionofrecordsordocuments

Inspectionoftangibleassets

Observation

Inquiry

Confirmation

Recalculation

Reperformance

Analyticalprocedures

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Compliance with ISAs

EnsurescompliancewithISA500inallmaterial

respects.

Effective Date

Effectiveforalltheauditscommencingonorafter

01Jan

2010.

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Thank you.

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