Audit evidence

Question 1

Audit evidence

Answer 1

The evidence needed by the auditor to be able to draw reasonable conclusion on which to base the audit opinion. The audit evidence has to be sufficient and appropriate.

Question 2

Sufficient audit aevidence

Answer 2

This refers to the quantity of audit evidence.

The quantity of audit evidence is affected by its risk of misstatment and also by its quality.

Question 3

Appropriate audit evidence

Answer 3

Is a measure of quality of the audit evidence, which needs to be relevant and reliable.

Question 4

How is the audit evidence obtained?

Answer 4

• from audit procedures performed during the course of audit
• previous audits
• firm’s quality control procedures for the acceptance and continunation of clients.

Question 5

What does audit evidence comprise of?

Answer 5

• accounting records
• minutes of meetings
• confirmation from third parties
• analysts reports
• comparative competitor data
• control manuals
• information obtained from enquiry, inspection, reperformance and observation.

Question 6

Degree of reliability of audit evidence

Answer 6

1. Independent third party sources are more reliable than internal evidence
2. Internally generated documents when controls are effective and reliable
3. Obtained directly by the auditor (eg: observation) more reliable than obtained indirectly (eg: enuqiry)
4. Written evidence is more reliable than oral evidence
5. Original documents more reliable than copies

Question 7

How is audit evidence obtained?

Answer 7

1. Tests of controls

2. Substantive procedures

Question 8

How to obtain audit evidence?

Answer 8

• Understanding of the entity, its environment and IC systems
• Tests the effectiveness of controls
• Perform substantive procedures , including tests of details
• Perform risk assessment procedures
• Perform tests of controls, where controls are operating effectively

Question 9

Evidence gathering procedures

also test the effectiveness of internal controls

Answer 9

AEIOU
Analytical procedures
Enquiry & Confirmation
Inspection of documents or assets
Observation of procedures
Recalculation and reperformance of the application of control

Question 10

Analytical procedures

Answer 10

Consist of evaluation of financial information obtained from financial and non-financial data.

Question 11

Enquiry and confirmation

Answer 11

Enquiry - seeking information of knowledgeable persons within and outside the entity and is used extensively during the audit.
eg: Auditors obtain written representation of oral enquiry from management, on material matters when sufficient appropriate audit evidence does not exist or is poor in nature.
Confirmation - obtaining information directly from a third party
eg: debtor circularisation, bank letters and requests for confirmation of terms of agreement

Question 12

Inspection

Answer 12

Inspection of documents and records - examination in any media
eg: inspection of purchase order for evidence of authorisation
Inspection of assets - eg: inspection of tangible assets is physical examination of the asset

Question 13

Observation

Answer 13

Observation is looking at at a process or procedure performed by others, regarding the performance of the function

Question 14

Recalculation and reperformance

Answer 14

Recalculation - checking the aritmetical accuracy of documents or records and can be performed through the use of CAATs
Reperformance - auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control, either manually or through the use of CAATs

Question 15

Analytical procedures

Answer 15

Risk assessment procedures needed to obtain an understanding of the entity and its environment (assess risk of misstatment), and
in the overall review at the end of the audit (are FS consistent with the auditor’s understanding of the entity?)

Question 16

Nature of analytical procedures

Answer 16

Analytical procedures involves the analysis of relationships between comparable items from the same or different periods, like current information to
- prior period data
- anticipated entity results
- similar industry information
to identify:
- consistencies and predicted patterns
- significant fluctuations and unexpected relationships

Question 17

Reasons for unexpected results when investigate fluctuations (investigation of unexpected fluctuations)

Answer 17

• legitimate business reason
• errors
• deliberate falsification

Question 18

Why are analytical procedures applied at the planning stage?

Answer 18

• To assist understanding the entity’s business
• As risk assessment procedures in
• identifying areas of potential audit risk
• planning the nature, timing and extent of other audit procedures