AUDIT EVIDENCE ppt

Audit Evidence

PSA 500

Timing of Audit Procedures

Definition of Audit Evidence

Nature of Audit Evidence

Work of Management Experts

Sufficient Appropriate Audit Evidence

Consideration before using the work of management's expert

Table of Content

Appropriateness: Relevance & reliability

Selecting Items for testing to obtain audit evidence

Audit Procedures for obtaining Audit Evidence

Inconsistencies in Evidence and doubts over reliability of information

Definition

Information used by the auditor in arriving at the conclusions on which the auditor's opinion is based

Audit Evidence includes:

Other Information

Information contained in the Accounting Records

Cumulative in nature and is primarily obtained from audit procedures during course of the audit

Audit Evidence

Audit evidence comprises both

Information that contradicts such assertions

Information that supports and corroborates management's assertions

More assurance is ordinarily obtained from consistent audit evidence from different sources or of different nature

Sufficient Appropriate Evidence

"Reasonable assurance is obtained when the auditor has obtained sufficient appropriate evidence to reduce audit risk to an acceptably low level" -PSA 200

Sufficiency and Appropriateness are interrelated

a. Sufficiency - measure of quantity of audit evidence

• affected by the auditor's assessment of risks of misstatements
• affected by the quality of such evidence

RMM = Quantity

Quality = Quantity

Obtaining more evidence may not compensate for its poor quality

Sufficient Appropriate Evidence

b. Appropriateness- measure of the quality of audit evidence

• relevance and reliability in providing support for the conclusions on which the auditor's opinion is based

Whether sufficient appropriate evidence has obtained is a matter of professional judgement

Relevance and Reliability

a. Relevance

• whether the evidence provides insight on the validity of the assertion being tested
• logical connection of the purpose of the audit procedure and the assertion

A set of audit procedures may provide evidence that is relevant to certain assertions, but not to others

Obtaining audit evidence regarding a particular assertion is not a substitute for obtaining evidence regarding another assertion

Relevance and Reliability

Relevance may be affected by the direction of testing a. Tracing - for Completeness or Understatement b Vouching - for Existence or Overstatement

Relevance and Reliability

b. Reliability

• ability to provide convincing evidence related to the assertion being tested
• it is influence by its sources and nature, and the circumstances under which is obtained

"Auditor is neither trained nor expected to be an expert in authentication. However, when the auditor has a reason to believe that a document may not be authentic it shall be investigated futher"

Relevance and Reliability

Generalization about reliability of evidence, subject to exceptions

• reliability of evidence is increased when it is obtained from independent sources outside the entity
• reliability of internally generated evidence is increased when related controls are effective
• evidence obtained directly by the auditor is more reliable than evidence obtained indirectly or by inference
• evidence in documentary form (paper, electronic, or other medium) is more reliable than evidence orally
• evidence provided by original documents is more reliable than evidence provided by photocopies or facsimiles or digitized data

Audit Procedures for Obtaining Audit Evidence

a. Risk Assessment Procedures

b. Further Audit ProceduresI. Test of Controls>Inquiry>Reperformance>Inspection of Documents>Observation

II. Substantive Procedures>Inquiry >Recalculation >Inspection of Documents >Inspection of Assets >External Confirmation >Analytical Procdures

Audit Procedures for Obtaining Audit Evidence

a. Inquiry - seeking information within or outside the entity.

b. External Confirmation - direct written response from a third party.

c. Inspection- Involves examining records or document or a physical examination of an asset.

e. Observation- looking at a process or procedure being performed by others, or on the performance of control activities.

f. Recalculation- checking the mathematical accuracy of documents or records

g. Reperformance - independent execution of procedures or controls that were originally performed as part of the entity's internal control

h. Analytical Procedure-evaluation of financial information made by a study of plausible relationship among both financial and non-financial data

Timing of Audit Procedures

• At the Balance Sheet Date
• After the Balance Sheet Date
• Interim Date

i. Allows earlier completionii. Appropriate when internal controls are effective iii. Additional procedures at or after the BS date are needed to make sure that no misstatements occures

• Cutoff Period- several days before and after the BS date

Work of Management's Expert

Management's Expert or Specialist - an individual or organization possessing expertise in a field other than accounting, whose work in that field is used by the entity to assist the entity in preparing financial statements.

A management's expert may be a. Engaged - an organization that provides services to various client b. Employed - an individual that provides services only to the entity

When information to be used as evidence has been prepared using the work of a management's expert, the auditor shall a. Evaluate the competence, capabilities, and objectivity of that expert

Nature and Level of Expertise Ability to Exercise Competence Professional Judgement

"A broad range of circumstances may threated objectivity, for example, self interest, advocacy, familiarity, self-review, and intimidation threats"

Work of Management's Expert

Can the auditor evaluate the management expert

b. Obtain an understanding of the work of that expert

• whether the expertise is relevant to the audit
• whether any professional or other standards and regulatory and legal requirement apply
• what assumptions and methods are used by the expert
• nature of data or information the auditor's expert uses

c. Evaluate the appropriateness of that expert's work as audit evidence

• relevance and reasonableness of findings and consistency with other evidence
• relevance and reasonable of significant assumptions
• relevance, completeness, and accuracy of significant source data

Information Produced by Client

When using information produced by the entity, the auditor shall evaluate whether the information is sufficiently reliable, including:

a. Obtaining audit evidence about the accuracy and completeness of the information b. Evaluating whether the information is sufficiently precise and detailed

Example: Incomplete and inaccurate sales volume data will render the applied procedures, for auditing revenue, ineffective

Selecting Items for Testing

Means of selecting items

Selecting all items

Selecting specific items

Auditing sampling

making inference from testing the sample

• small number of large value items
• there is a significant risk
• 100% examination is cost effective

• high-value or key items
• all items over a certain amount
• items to obtain information

Inconsistencies and Doubts

iF

a. Evidence obtained from one source is inconsistent with that obtained from another: or b. Auditor has doubts over the reliability of information to be used as evidence

The auditor shall determine what modifications or additions to audit procedures are necessary to resolve the matter

Our Team

Rachel Tabiosas

Dikimbee Aldave

Jherry Mae Manlagnit

Jehan Franz Primo

Nicole Angele Guerrero

THANKYOU!

Padayon BSA-3A

Trust in the LORD with all your heart and lean not on your own understanding; in all your ways submit to Him, and He will make your paths straight , Proverbs 3:5-6