9. audit evidence

BY

Atta-ur-Rahman Arif

MEANINGThe information obtained by the auditor

in arriving at the conclusions on which

the audit opinion is based.

It comprise source documents and

accounting records underlying the

financial statements and corroborating

information from other sources.

OBJECTIVE

The auditor should obtain Sufficientand Appropriate Audit Evidence tobe able to draw reasonableconclusions on which to base theaudit opinion.

Sufficient and Appropriate Audit Evidence

Sufficiency is the measure of quantity

of audit evidence.

Appropriateness is the measure the

quality of audit evidence and its

relevance to a particular assertion and

reliability.

Sufficient and Appropriate Audit Evidence

Factors which are influenced to the judgment of auditor

regarding sufficient appropriate audit evidence:

Nature and level of Inherent Risk

Nature of the Accounting and Internal Control System and

Control Risk

Materiality of the item being examined

Experience gained during previous audit

Results of audit procedures

Source and reliability of information available

Questions to form an opinion and reporting Financial Statements

Balance Sheet Items:

Have all of the assets and liabilities been recorded?

Do the recorded assets and liabilities exist?

Are the Assets owned and liabilities are belongs to

Enterprise?

Have the amounts arrived at in accordance with the

policies?

Have all the items (A/L/E/R) properly disclosed?

Questions to form an opinion and reporting Financial Statements

Profit and Loss Accounts:

Have all income and expenses been recorded?

Did the recorded income and expense transactions in fact

occur?

Have the income and expenses been measured in

accordance with the a/c policies?

Have income and expenses been properly disclosed where

appropriate?

SOURCESTEST OF CONTROL

Test performed to obtain audit evidence about the

suitability of design and effective operation of

the accounting and internal control systems.

SUBSTANTIVE PROCEDURES

Test performed to obtain audit evidence to detect

material misstatement in the financial statements by

tests of details of transactions and balances, and

analytical procedures.

FINANCIAL STATEMENTS ASSERTIONS

Assertions are the representations of the

management, explicit or otherwise, in the financial

statements.

They can be categorized as follows:

1. Existence:

An asset or a liability exists at a given date.

2. Rights & Obligations

An asset or a liability pertains to the entity at a given

date.

3. Occurrence:

A transaction or event took place actually incurred

during the accounting period.

4. Completeness:

There are no unrecorded assets, liabilities, transactions

or events, or undisclosed items.


5. Valuation:

An asset or liability is recorded at an appropriate

carrying value.

6. Measurement:

A transaction or event is recorded at the proper amount

and revenue or expense is allocated to the proper period.


7. Presentation & Disclosure:

An item is disclosed, classified and described in

accordance with the applicable financial reporting

framework.

8. Validity & Authorization:

All the transactions recorded are totally authorized by

the management and are valid in the accounting period.


PROCEDURE TO OBTAINING AUDIT EVIDENCE

1. Inspection:

It consists of examining records, documents to varying the

degree of reliability.

It also consist of examining tangible assets with respect to

their existence but not necessarily as to their ownership or

value.

2. Observation:

It consists of looking at a process or procedure being

performed by others.

3. Inquiry :

It consist of seeking information of knowledgeable

persons inside or outside of entity. It can be in form

of written inquiries addressed to third parties or

informal oral inquiries addressed to inside.

4. Confirmation:

It consist of response to an inquiry to corroborate

information contained in the accounting records.


5. Computation:

It consists of checking the arithmetical accuracy of

sources documents and accounting records.

6. Analytical Procedures:

It consists of the analysis of significant ratios and trends

including the resulting investigation of fluctuation.


Types of Audit Evidence1. Physical Examination

• Used for Tangible assets

• To verify existence

2. Confirmation

• Written response from third party

• Letters signed by client, but received by auditor

3. Mathematical Evidence

• Recalculation of Computations

Types of Audit Evidence4. Documentation

• Examination - client’s supported documents

• Internal or External Documents

5. Inquiries of the client

• Oral or written information from client

• Confirmation by other sources

6. Analytical Review Procedure

• Comparisons of recorded amounts

• Industry averages, auditor’s understanding

Characteristics of Evidence1. Relevance

Evidence must be relevant to the assertions being examined by the auditor.

The auditor should always keep in his mind the objective of a particular

audit and obtain evidence according to the objective e.g. physical

observation of an inventory as relevant evidence.

2. Freedom from Bias

Must be careful in collecting evidence which is free from bias

3. Objectivity

Objectivity is the ability of different auditors to reach a similar conclusion

based on an examination of evidence

4. Persuasiveness

If evidence is sufficient in quality and quantity to allow auditor to reach a

conclusion

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9. audit evidence