Week 5 - Audit Evidence, Auditor's Procedure in response to Assessed Risks & Audit Strategy Audit Evidence (ASA 500) - concept where auditor achieves objective of reasonable assurance that none of management's assertions are materially misstated, consists of: Underlying accounting data All available corroborating information Books of original entry Documents e.g. cheques, authorisations for direct bank transfers, invoices, contracts, etc. General and subsidiary ledgers Confirmations and other written representations Worksheets, schedules, Information from inquiry, observations, calculations, etc. inspection and physical examination Related accounting manuals All other information obtained or developed by the auditor - auditor required to design & perform audit procedures to obtain SAAE in order to draw reasonable conclusions to base auditor's opinion - audit evidence is obtained from performance of: risk assessment procedures, tests of controls internal controls), and substantive testing financial info) - sufficient = measure of quantity; appropriate = measure of quality i.e. relevance and reliability) - audit evidence corroborates confirms) managements' controls Types of Audit Evidence - audit evidence can take several forms: visual observations, oral, documentary, physical e.g. seeing an asset), electronic - documentary evidence includes: accg records & supporting docs, board mins of meetings, confirmations, written representations, analytical procedures fluctuations between sales in different years) Sources of Audit Evidence ASA 500.A1 & A7-A9) - evidence can be: o created by external parties and transmitted directly to auditor o created by external parties and held by client o created and held by client o electronic documents - nature and source of evidence affects level of assurance the auditor derives from the info MOST RELIABLE Audit Procedures in response to Assessed Risks (ASA 500.A14-A25) - may be used as risk assessment procedures, TOCs or substantive procedures, depending on the context in which they're applied by auditor ASA 500.A11) - many of these procedures can be performed/facilitated through use of generalised audit software Audit Procedures: Enquiry - consists of seeking info of knowledgeable persons financial & non-financial) within entity or outside entity Externally generated documents sent directly to the auditor Externally generated documents held by the client/entity Internally generated documents that are circulated externally Internally generated documents that are not circulated externally LEAST RELIABLE Examples . Cut-off bank statement . Confirmations . Supplier's invoice · Bank statement · Receipted bank deposit slip . Receipted shipping document · Duplicate sales invoice · Purchase requisition
- evaluating responses to enquiries is integral part of enquiry process e.g. enquire sales personnel concerning possible excess/obsolete inventory to identify slow-moving, excess, defective or obsolete items) Audit Procedures: Inspection and Observation - inspection involves examining records/docs internal/external) in paper form, electronic form or physical examination of an asset e.g. select a sample of inventory lines and compare with suppliers' invoices to ensure inventories are properly stated at cost) - observation consists of looking at a process/procedure being performed by others limited to specific point in time) e.g. observe inventory test counts by entity's personnel) Information Source Cash at bank Bank/s Accounts receivables Customer/s Audit Procedures: External Confirmation Owned inventory on consignment