1. AUDIT LECTURE 6 AUDIT EVIDENCE HOLY KPORTORGBI
EXCEL ICAG SCHOOL
AUDIT LECTURE 6
AUDIT EVIDENCE
HOLY KPORTORGBI

2. LECTURE 6
AUDIT EVIDENCE

3. Audit Evidence
ISA 500 requires the auditor perform audit procedures in a manner that enable him obtain SUFFICIENT and APPROPRIATE DOCUMENTED evidence to support financial statement ASSERTIONS
Quantity
Relevant
Reliable
Court worthy
Incontrovertible
Class of transactions
Account balances

4. Obtaining Evidence
The auditor is required to obtain sufficient evidence to cover assertion about classes of transactions, account balance level and financial statement presentation and disclosure level
Occurrence
Completeness
Accuracy
Classification
completeness
Existence
Right and obligation
Valuation

5. Obtaining Evidence Audit Evidence could be obtained through
Inspection of assets
Inspection of documentation
Observation
Enquiries
Confirmation
Recalculations
Reperformance
Analytical Procedures

6. Obtaining Evidence
The evidence gathering can either be through applying the audit procedures to all items within the class or through audit sampling
ISA 530- Audit Sampling makes arguments for audit sampling and provides guidelines for sampling
Statistically based audit sampling
Non statistical methods

7. Obtaining Evidence
In deciding what constitute sufficient and appropriate evidence, the auditor must consider
Risk assessment results
Nature of accounting and internal controls
Materiality
Experience from previous audit
The results of audit procedures
Source and reliability of the evidence

8. Audit Evidence-External Confirmation
Audit evidence from an independent external source is more reliable than internal audit evidence
ISA 330 requires an auditor to consider whether external confirmation procedures are to be performed as substantive audit procedures
ISA 300 identifies situations where external confirmations are appropriate
Bank balances, accounts receivables, accounts payable, property held by lawyers, consigned inventories etc

9. Audit Evidence-External Confirmation
The auditor is required to maintain control over external confirmations
If management refuses to allow the auditor to send an external confirmation request, the auditor must assess if reasons for refusal is reasonable and if there are alternative ways of obtaining the evidence
If there are no alternatives, the auditor should communicate with TCWG and consider the impact on the audit report

10. Audit Evidence-External Confirmation
All confirmation responses carry some risk of interception, alteration or fraud: Auditor=Professional skepticism
Question: Page 170

11. Audit Evidence -CAATs
Audit software may be used in carrying out audit procedures
Interrogation software for interrogating data and systems
Comparison programs for comparing versions of programs and documents
Resident code software for reviewing transactions as they are processed
The auditor may adopt test data techniques or an embedded audit facilities to facilitate audit gathering process

12. Audit Evidence-Substantive Analytical procedures
Analytical procedures maybe
Simple comparisons
Comparisons with estimate prepared by auditors
Relationship between financial and non financial information
ISA 520 Analytical procedures advises auditors not to rely solely on analytical procedure
Notwithstanding this caution, analytical procedures provide a cost effective means of selecting transactions for detail testing

13. Audit Evidence-Related Party Transactions
ISA 550 requires of auditors to obtain evidence on whether related party transactions have been approved and disclosed in accordance with IAS 24
The auditor is expected to recognize fraud risk factors arising from related party transactions and design appropriate responses to identified risks (Pg 177)
He must obtain sufficient and appropriate evidence about whether the related party transactions have been identified, accounted for and disclosed in accordance with reporting framework (Pg 181)

14. Audit Evidence-Written representations
It may be necessary to obtain written representation from management/from persons designated by management
ISA 580 requires the Auditor to receive specific written representation regarding certain areas (See pg 185)
The auditor is also required to assess the representations to ensure it is appropriate and reasonable

15. Audit Evidence-Written representations
Where the auditor doubts the reliability of the written representations, he should perform further audit procedures
Where management is unwilling to make issue the representation the auditor may consider the effect on the audit report

16. Audit Evidence- Reliance on the work of Auditor’s expert (ISA620)
Auditors have sole responsibility for their opinion, but may use the work of an expert to obtain sufficient audit evidence
Examples of audit evidence which might be obtained from opinion of an expert include
Valuation of certain assets, determination of quantities or physical conditions of assets, determination of some amounts, legal opinions, WIP on contracts

17. Audit Evidence- Reliance on the work of Auditor’s expert (ISA620)
Engaging an Auditor’s external expert is a costly procedure and should be used only if there is real need for it and unless the evidence can not be procured through an alternative means
The auditor’s expert should be competent and maintain appropriate level of objectivity
The auditor shall evaluate the relevance and reasonableness of the expert’s finding and conclusion

18. Audit Evidence- Reliance on the work of Auditor’s expert (ISA620)
The auditor shall not refer to the work of an auditor’s expert in an unmodified opinion unless required by law or regulation
If the auditor issues a modified report, he may then refer to the work of an expert

19. Audit Evidence- Reliance on the work of internal audit
Internal audit’s work can be relied upon, but only if it meets the needs of the external auditor
Determining extent of reliance depends on
The organisational status of the internal audit
The competence level of the IA function
Approach and quality control systems of the IA
The caveat is reliance on the work of IA is inappropriate if it involves significant judgment (risk assessment, materiality, going concern,etc)

20. Audit Evidence-Documentation
The rule remains hardcore documented evidence
Where such evidence is obtained through conversations, notes/transcripts of such conversations should be confirmed in writing
The written evidence should be compiled and file as working papers for review (hot, peer or pre-issuance) and evaluation

21. THANKS