Process of Assurance: Evidence and

Reporting

Mohammad Salahuddin Chowdhury, ACA

Evidence
Audit Evidence
All of the information used by the auditor in arriving at the
conclusions on which audit opinion is based.
Audit evidence includes all the information contained
within the accounting records underlying the financial
statements, and other information gathered by the
auditors, such as confirmation from third parties.
In order to reach a position in which they can express a
professional opinion, the auditors need to gather evidence
from various sources. There are potentially two types of
test which they will carry out: tests of controls and
substantive procedures.

Evidence
Tests of Controls
Performed to obtain audit evidence about the
effectiveness of controls in preventing, or detecting and
correcting material misstatements at the assertion level.
When the auditors carry out test of controls, they are
seeking to rely on the good operation of the control
system that the company has in place to draw a
conclusion that the financial statements give a true and
fair view. The logic is as follows:
The directors set up systems of internal controls to
ensure they report correctly to the shareholders.

Evidence
Tests of Controls
The auditors are required to conclude whether the
financial statements give a true and fair view.
The auditors evaluate the control system put in place
to assess whether it is capable of producing financial
statements which give a true and fair view.
The auditors test the control systems to assess
whether it has operated as it was intended to, therefore
giving assurance that the financial statements give a
true and fair view.

Evidence
Substantive Procedures
Audit procedures performed to detect material
misstatements at the assertion level. They include:
Tests of detail of classes of transactions, account
balances and disclosures.
Substantive analytical procedures.
When the auditors carry out substantive procedures, they
are testing whether specific items within balances or
transactions in the financial statements are stated
correctly. BSAs require that the auditors must always
carry out some substantive procedures, because the
limitations in internal control systems mean that the
control system can never be fully relied on.

Evidence
The auditor must always carry out the following
substantive procedures:
Agreeing the financial statements to the underlying
accounting records.
Examining the material journal entries.
Examining other adjustments made in preparing the
financial statements.

Evidence
Sufficient Appropriate Audit Evidence
BSA 500 Audit Evidence requires auditors to obtain
sufficient appropriate audit evidence to be able to draw
reasonable conclusions on which to base the audit
opinion. Sufficiency and appropriateness are interrelated
and apply to both tests of controls and substantive
procedures.
Sufficiency is the measure of the quantity of audit
evidence.
Appropriateness is the measure of the quality or
reliability of the audit evidence.
How much evidence is required will depend on the level of
assurance being offered in an engagement.

Evidence
The quantity of audit evidence required is affected by the
level of risk in the area being audited. It is also affected by
the quality of evidence obtained. If the evidence is high
quality, the auditor may need less than if it were poor
quality. However, obtaining a high quantity of poor quality
evidence will not cancel out its poor quality.
Quality of Evidence
The following generalizations may help in assessing the
reliability of audit evidence:
External
Audit evidence from external sources is more reliable than
that obtained from the entitys records.

Evidence
Auditor
Evidence obtained directly by auditors is more reliable
than that obtained indirectly or by inference.
Entity
Evidence obtained from the entitys records is more
reliable when related control systems operate effectively.
Written
Evidence in the form of documents (paper or electronic) or
written representations are more reliable than oral
representations.
Originals
Original documents are more reliable than photocopies or
facsimiles.

Evidence
Financial Statement Assertions
The financial statements assertions are representations by
management, explicit or otherwise, that are embodied in
the financial statements. The auditor should use
assertions for classes of transactions, account balances
and presentation and disclosures in sufficient detail to
form a basis for the assessment of risks of material
misstatement and the design and performance of further
audit procedures.

Evidence
Assertions Used by the Auditors
Assertions about classes of transactions and events for the
period under audit
Occurrence
Transactions and events that have been recorded have occurred
and pertain to the entity.
Completeness
All transactions and events that should have been recorded have
been recorded.
Accuracy
Amounts and other data relating to the recorded transactions
and events have been recorded appropriately.
Cut-off
Transactions and events have been recorded in the correct
accounting period.

Evidence
Classification
Transactions and events have been recorded in the proper
accounts
Assertions about account balances at the period end
Existence
Assets, liabilities and equity interests exist.
Rights and Obligations
The entity holds or controls the rights to assets, and
liabilities are the obligations of the entity.

Evidence
Completeness
All assets, liabilities and equity interests that should have
been recorded have been recorded.
Valuation and Allocation
Assets, liabilities and equity interests are included in the
financial statements at appropriate amounts and any
resulting valuation or allocation adjustments are
appropriately recorded.

Evidence
Assertion about presentation and disclosure
Occurrence and Right and Obligations
Disclosed events, transactions and other matters have
occurred and pertain to the entity.
Completeness
All disclosures that should have been included in the
financial statements have been included.
Classification and Understandability
Financial information is appropriately presented and
described and disclosures are clearly expressed.
Accuracy and Valuation
Financial and other information are disclosed fairly and at
appropriate amount.

Evidence
Audit procedures for obtaining Audit Evidence
Inspection
Inspection involves examining records or documents, whether
internal or external, in paper form, electronic form, or other
media or a physical examination of an asset. An example of
inspection used as a test of controls is inspection of records for
evidence of authorization. Inspection of tangible assets may
provide reliable audit evidence with respect to their existence,
but not necessarily about the entitys rights and obligations or
valuations of assets.

Observation

Observation consists of looking at a process or procedure being

performed by others. Examples include observation of the
counting of inventories by the entitys personnel and observation
of the performance of control activities.

Evidence
Audit procedures for obtaining Audit Evidence
External Confirmation
An external confirmation represents audit evidence
obtained by the auditor as a direct written response to the
auditor from a third party (the confirming party), in paper
form, or by electronic or other medium. For example, the
auditor may ask direct confirmation of receivables by
communication with debtors.
Recalculation
Recalculation consists of checking the mathematical
accuracy of documents or records. Recalculation may be
performed manually or electronically.

Evidence
Audit procedures for obtaining Audit Evidence
Re-performance
Re-performance involves the auditors independent
execution of procedures or controls that were originally
performed as part of the entitys internal control.
Recalculation may be performed manually or
electronically, for example, re-performing the ageing of
accounts receivable.

Any Questions ?