LECTURE 5 – AUDIT EVIDENCE
In planning an audit, three questions need to be answered:
o What audit procedures should be performed (nature)?
o How much evidence is needed (extent)?
o When should the audit procedures be performed (timing)?
Audit programs detail the auditor’s plan to gather, evaluate and document evidence.
Information – conclusions – audit opinion
Sufficient, appropriate evidential matter – ASA 500 (6)
o “The auditor shall design and perform audit procedures that are appropriate in the circumstances for
the purpose of obtaining sufficient appropriate audit evidence.”
The auditor has to obtain the right quantity (sufficient) of the right quality (appropriate) evidence.
o “When designing and performing audit procedures, the auditor shall consider the relevance and
reliability of the information to be used as audit evidence.” ASA 600 (7)
The auditor gathers evidence to evaluate the management assertions embodied in the financial statements and
o Existence or occurrence
o Rights and obligations
o Valuation or allocation
o Presentation and disclosure
Assertion Categories (Objectives)
Transactions Account balances Disclosure
Occurrence x x
Completeness x x x
Accuracy x x
Classification x x
Rights and obligations x x
Valuation and x x
Understandability x Transaction-related audit objectives
Account balance audit objectives Steps in the Overall Audit Process
1 Understand the client and industry.
2 Assess environment risk.
3 Directly test transactions and/or account balances.
4 Assess adequacy of evidence.
Nature of Audit Testing
Auditors have traditionally used direct tests of year-end account balances, as opposed to examining the
transactions that make up the account balance.
o OK if there are fewer items in year-end balances than the underlying transactions during the year.
o Also, if risky, more reliable evidence usually exists for an ending balance than for the underlying
If you can gather evidence during the year – you do this!
However, there are different types of accounts:
o Some have a high turnover of transactions, such as accounts receivable
o Others, such as many long-term accounts (assets, liabilities, owners’ equity) are more stable:
The auditor may focus on the transactions that occurred during the audit period.
Commonly Used Evidence Fathering Procedures
Inspection of documents – examination/authenticity
Inspection of tangible assets –existence/obsolescence/completeness
Observation –personnel/procedures but intrusive
Inquiries of client personnel – efficient but needs corroboration
Confirmations with outside parties – strong evidence
o Write to bank/creditors to confirm existence of transaction
Recalculation of data – cross-footing/recalculations – aided by caats