1. Discussion on SA-500 – AUDIT EVIDENCE
CA. Saju Sreedhar.K, FCA

2. Preface
Audit evidence forms the bedrock of the auditor’s report on financial statements. Auditor expresses his opinion of the financial statements based on evaluation of sufficient appropriate audit evidence that supports / corroborates the various assertions by the auditee in respect of financial statements. Having regard to the importance of evidence ICAI has issued SA 500 which contains fundamental concepts relating to audit evidence.

3. “SA Forming an Opinion and Reporting on Financial Statements” lays emphasis on importance of Audit evidence.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements  We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

4. Opinion
In our opinion and to the best of our information and according to the explanations given to us, the aforesaid  financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India …………
Report on Other Legal and Regulatory Requirements
2. As required by Section 227(3) of the Act, we report that:
 (a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit.
 (b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books.

5. Scope
Explains what constitutes audit evidence in an audit of financial statements
Deals with auditor’s responsibility to design and perform audit procedures to obtain sufficient and appropriate audit evidence to draw conclusion on the financial statements
SA is applicable to all audit evidence obtained during the course of the audit

6. Effective Date
This SA is effective for audits of financial statements for periods beginning on or after April 1, 2009.

7. Objective
Design and perform audit procedures to obtain sufficient appropriate audit evidence to draw a reasonable conclusion on which to base the auditor’s opinion

8. Requirements of the standard
Sufficient appropriate audit evidence (para.6)
auditor shall perform audit procedures to obtain sufficient appropriate audit evidence to support auditor’s opinion and audit report
Audit evidence is cumulative in nature and is primarily obtained from the audit procedures performed in course of audit ( Compliance and substantive)
other sources of audit evidence include firm’s quality control procedures for client acceptance and continuance.

9. Sufficient Appropriate audit evidence is required to give reasonable assurance to the auditor that the FS taken as a whole are free from material misstatements and thereby reduces the audit risk to an acceptable low levels.
Sufficiency
measure of quantity of audit evidence
effected by auditor’s risk assessment procedures
quality of audit evidence
Appropriateness
is a measure of the quality of audit evidence
emphasis on the relevance and reliability of audit evidence
is influenced by the source of audit evidence.

10. Sources of audit evidence
Can be broadly classified as internal and external sources
The level of assurance as to the audit evidence would depend upon the source and nature of audit evidence.

11. Procedures for obtaining audit evidence
Auditor obtains audit evidence through performing
risk assessment procedures
compliance procedures
Substantive procedures
The audit procedures for obtaining audit evidence comprises of the following
Inspection
examination of records both internal and external, in paper, electronic or other media and also includes a physical examination of an asset.
The reliability of audit evidence is dependent upon the nature, source and effectiveness of controls over their production.
Observation
provides audit evidence wrt performance of a process/ procedure but is limited to the point in time at which the observation takes place, and by the fact that the act of being observed may affect how the process or procedure is performed.

12. External confirmation
evidence obtained by the auditor as a direct written response to the auditor by a third party
is relevant for assertions relating to account balances and their elements
they are not confined to account balances alone and may extent to other agreements and transactions
Recalculation
Reperformance
Analytical procedures

13. Inquiry
Seeking information from knowledgeable persons, both financial and non financial within or outside the entity
evaluating responses to inquiry is an integral part of inquiry process
Inquiry may provide the auditor with information not previously known or may provide corroborative evidence.
It may also provide information which contradicts the other information in pocession of the auditor, in which case the auditor has to modify or perform additional audit procedures.

14. Information to be used as audit evidence
Relevance and Reliability (Para 7)
In design and performance of audit procedures, the relevance and reliability of the information to be used as audit evidence shall be considered by the auditor
Relevance deals with the logical connection with or bearing upon the purpose of audit procedure, the assertions under consideration .
A given set of audit procedures provides audit evidence that are relevant to certain assertions but not to others. ( inspection of FA gives audit evidence regarding the existence but do not provide evidence as to the valuation and ownership)
Compliance procedures are designed to obtain audit evidence with respect to the existence and operational effectiveness of internal controls for preventing or detecting and correcting material misstatements at assertion level.

15. substantive procedure are designed to detect material misstatement at the assertion level.
Reliability
reliability of audit evidence is influenced by the source and nature, circumstances under which it is obtained including the controls over its preparation and maintenance.
The following generalizations regarding reliability of audit evidence are to be considered
Reliability is increased if it is obtained from an independent source
Reliability of internally generated audit evidence increases if the internal controls over their generation are effective
Audit evidence obtained directly are more reliable in comparison to one obtained indirectly or by inference.
Audit evidence provided by original documents are more reliable as compared to photocopies and documents digitized or converted to electronic form.

16. Relying on the work of management’s expert (Para 8)
While relying on the work of management’s expert the auditor shall:-
Evaluate the competence, capability and objectivity of the expert
Obtain an understanding of the work of the expert
Evaluate the appropriateness of the expert’s work as audit evidence for relevant assertions

17. When using the information produced by the entity, the auditor shall evaluate whether the information is sufficiently reliable for auditor’s purposes including (Para 9)
Obtaining audit evidence regarding accuracy and completeness of audit evidence
Evaluating whether the information is sufficiently precise and detailed for auditor’s purposes

18. Selecting Items for Testing to obtain audit evidence (Para 10)
An effective testing is designed to provide appropriate audit evidence sufficient for auditors purposes
In selecting the items for testing the auditor need to consider relevance, sufficiency and reliability of items selected
Means available to the auditor for selection of items for testing are
Selecting all items (100% verification)
Selecting specific items
Audit sampling
Auditor should select any one or combination of these means as may be appropriate in the circumstances.

19. 100% verification
Auditor may decide to verify the entire population in the following circumstances
Population consists of small number of high value items
There is significant risk an other means do not provide the sufficient appropriate audit evidence
Repetitive nature of the calculation or other processes performed by the information system make 100% examination cost effective

20. Selecting Specific items
The factors to be considered for by the auditor for this purpose include
understanding the entity, assessed risk of material misstatement and characteristics of population being selected
specific items selected include
High Value or Key items
All items over a certain amount
items to obtain information about matters such as the nature of the entity or nature of the transactions
Selective examination of specific items do not constitute audit sampling and as such do not provide evidence as to remainder of the population

21. Inconsistency in / doubts over reliability of audit evidence (Para 11)
If audit evidence obtained from one source is inconsistent with that obtained from another; or
The auditor has doubts over the reliability of information to be used as audit evidence,
The auditor shall determine what modifications or additions to audit procedures are necessary to resolve the matter, and shall consider the effect of the matter, if any, on other aspects of the audit.

22. THANK YOU