AUD589

HAZRINA BT IBRAHIM
2013283488
NUR SYAHIRAH BT ALIAS
2013229762
NUR AQILAH BT MOHD NOOR BE
2013609114

AUDIT
EVIDENCE AND
PROCEDURES

Introduction
ISA 500 requires the auditor to obtain
sufficient appropriate audit evidence
to be able to draw reasonable
conclusions on which to base the
audit opinion
Audit evidence all of the
information used by the auditor to
determine whether the information
being audited is stated in accordance
with the established criteria

Sources of Audit evidence

Auditor originated evidence
Evidence created by:
third parties
Management/staff of the client

Management Assertions, Audit Objectives, Audit

Procedures, Audit Evidences
Management
Assertions

Audit
Objectives

Sample Audit
Procedures

Existence

Existence

Physical site visit to

confirm existence of
building

Rights and
Obligation

Ownership

Checking SPA for

ownership of building

Completeness

Completene Verify numerical sequence

ss
of sales invoices

COMPETENCE OF EVIDENCE
LEVEL

TYPE OF EVIDENCE

HIGH

AUDITOR VERIFY
-physical examination
-analytical procedure
- reperformance
-observation
-recalculation

MEDIUM

THIRD PARTY
-bank confirmation
-debtors confirmation
-creditors confirmation

LOW

CLIENTS INFORMATION
-documentation(internal)
-inquiries of client
-analytical procedure

Cost of types of evidence

EVEL OF COST

MOST EXPENSIVE

TYPE OF EVIDENCE

i)Physical examination
COST OF TYPES
OF
Normally requires auditor presence w
client counting the asset
EVIDENCE
Several auditors travelling to widely

MODERATELY COSTLY

separate geographical locations

ii)Confirmation
Auditor must follow careful procedure
confirmation preparation,mailing and
receipt and in follow up of non respon

i)Documentation
If client personnel locate document f
auditor and organise them for conven
use,documenttaion has fairly low cos
When auditor find those documents
themselves,documentation can be
extremely costly
ii)Analytical procedure
Less expensive than confirmation an
physical examination.most auditor pr
to replace test of details with analytic
procedure when possible.it ,ay be far
expensive to calculate and review sa
and account receivables ratio than to

LEAST EXPENSIVE

I)OBSERVATION
AUDITOR CAN EASILY
OBSERVE WHETHER CLIENT
PERSONNEL FOLLOW
APPROPRIATE INVENTORY
COUNTING PROCEDURE AT
THE SAME TIME HE OR SHE
COUNT A SAMPLE OF
INVENTORY(PHYSICAL
EXAMINATION)
II)INQUIRIES OF CLIENTS
DONE EXTENSIVELY ON EVERY
AUDIT AND NORMALLY HAVE
A LOW COST.
BUT,CERTAIN INQUIRIES MAY
BE COSTLY ,SUCH AS
OBTAINING WRITTEN
STATESMENT FROM CLIENT
DOCUMENTING DECISION
THROUGHOUT THE AUDIT
III)REPERFORMANCE

Evidence Accumulation
Things to consider in accumulating evidence:
Audit procedures compare cash
disbursement journal and cheques
Sample size to be taken 50 cheques out of
1,000?
Which item to select October cheques? 50
cheques with largest amount?
Timing when to perform procedures, date of
audit report submission, when audit evidence
most effective, when audit staff available

Types of Audit Evidence

Physical examination
Confirmation
Documentation
Analytical Procedures
Inquiries of the Clients
Reperformance
Observation

1. Physical Examination
Inspection or count by the auditor
Provides a relatively reliable type of
evidence that involves the auditor
inspecting or counting tangible assets
E.g. counting cash on hand, examining
inventory

However, provide little or no

assurance to ownership objective

2. Confirmation
Receipt of a written or oral response from an
independent third party verifying the accuracy
of information that was requested by auditor
Reliability depends on the form of
confirmation, prior experience with the entity,
the nature of the information being confirmed,
and the intended respondent
E.g. auditor can send a confirmation to a consignee
to verify that a clients inventory has been
consigned

Positive confirmation
Response whether agree with the
amount/information stated

Negative confirmation
Response only if the amount/information is incorrect

Blank confirmation

3. Documentation

(will look further)

Inspection of documentary evidence

E.g. ledgers, journals, payment vouchers,

invoices

Internal documents generated and

maintained within clients premises

E.g. duplicate copies of sales invoices,

material requisition form

External documents documents

originating within the client and
circulated to independent sources
outside the clients premises and/or
documents generated outside the
client but included in clients
accounting records

E.g. bank statements, suppliers invoices

4. Analytical procedures

(will

look further)

Consists of evaluation of financial

information made by a study comparisons
and relationship among both financial and
non-financial data
E.g. current year account receivables balance
can be compared to the prior year balance
after adjusting for any increase/decrease in
sales and other economic factor
Calculate the ratio of sales commission
expense to sales as a test of sales commission

5. Inquiries
Response (oral/written) obtained from clients
personnel or management to questions
raised by the auditor
E.g. auditor may ask the chief account to
explain on the discrepancy in amount of cash
recorded against the physical cash exists in
the business
Normally, it is necessary to obtain supporting
evidence to substantiate response as the
response acquired not from independent
source may be bias to the clients favour

6. Reperformance
Rechecking sample of the computations
and transfers of information made by
client
Checking the arithmetical accuracy of
source documents and accounting records
E.g. casting, cross-casting (each column
of trial balance is added and tally),
reconciling ledgers to account balances,
testing posting from journals to ledgers
Considered as highly reliable

7. Observation
Observing the performance of some activity
E.g. segregation of duties between the
person receiving payments from
customers and the person recording those
payments in the account receivable
ledger, plant tour, observe stock count
Highly reliable provides evidence on what
actually happens

Quality and Adequacy of Audit

Evidence
Determinants of persuasiveness of
evidence:
Appropriateness/reliability

Relevance
Independence of provider
Effectiveness of clients internal control
Auditors direct knowledge
Qualifications of individuals providing
information
Degree of objectivity
Timeliness

Sufficiency

Determinants: Reliable
The credibility of the evidence
and influenced by its nature and
its source
Level of reliability:
High: the auditor has direct
knowledge about it
Medium: depends whether its from
external or internal source
Low: when it needs more
substantiation by the auditor

Determinants: Relevant
Whether the evidence relates to the
specific audit objectives being
tested.
E.g. to check on the completeness
objective for recording sales
transactions: evidence = numerical
sequence of pre numbered shipping
documents

Determinants: Timeliness
Refer either to when it was accumulated or
to the period covered by the audit
For balance sheet items more persuasive
if close to the date of the balance sheet
For profit and loss account more
persuasive if there is a sample from the
entire period under the audit

Determinants: Sufficient
Measure of the quantity of audit
evidence.
Have to consider
Effectiveness of internal control
Nature, audit risk and materiality
Quality of evidence
Auditors experience and knowledge of
the business and its industry

Auditing Procedures to Collect

Evidence
Audit procedures are specific
acts performed as the auditor
gathers evidence to determine if
specific audit objective is met
to collect the 7 types of audit
evidence

Term Used in Audit

Procedure

Examine documentation
Scan analytical procedure
Read documentation
Compute analytical procedure
Recompute reperformance
Foot reperformance
Trace Reperformance/documentation
Compare documentation
Count physical documentation
Observe observation
Inquire inquiries of client
Vouch - documentation

Types of Test in FS Audit

Test of controls: procedures that evaluate the

effectiveness of the design and operation of internal
control
Substantive test of transactions: substantive
procedures to detect error/fraud in individual
transaction whether the 6 transaction-related audit
objectives have been satisfied
Analytical procedure: the use of comparisons and
relationship to assess whether account balances or
other data in FS appear reasonable
Test of account balances: test that concentrate on
the details of amount contained in the account
balances whether the 9 balance related audit
objectives have been satisfied

Audit Documentation
Audit working papers principal
record of auditing procedures applied,
evidence obtained and conclusion
reached by the auditor
ISA 230 working papers should
record the auditors planning, the
nature, timing and extent of the
auditing procedures performed and
the conclusions drawn from the
evidence obtained

Importance of Working Papers

To aid auditor in providing assurance
that an adequate audit was conducted
Provide basis for planning the audit
As a record of evidence accumulated
and results of tests performed
Provide data for determining proper
type of audit report
Provide basis for review by supervisors,
partners and other auditors
Reference for future audit

Types of Audit Documents/Working

Papers
Permanent files - contain data of
historical or continuing nature
Current files includes all audit
documentation applicable to the year
under audit

Permanent Files
Copies of, or excerpts from, the memorandum
and articles of association of the company
Charts of accounts
Organisation chart
Accounting manual
Copies of important contracts (pension contracts,
union contracts, leases, etc)
Documentation of internal control (flow charts)
Terms of debenture and bond issues
Prior years analytical procedure results

Current Files
Copy of financial statements and auditors
report
Audit plan and audit programs
Copies or, or excerpts from, minutes of
important committee meetings
Working trial balance
Adjusting and reclassification journal
entries
Working papers supporting financial
statement amounts

PREPARATION OF
WORKING PAPERS INDEXING
The Indexing
System is a
combination of letters and
numbers.
E.G: The lead schedule is
indexed B while the
supporting audit working
papers are numbered B/1 to
B/4.

OWNERSHIP OF WORKING
PAPERS
Audit documentation is the property of
the auditor, and some states recognize
this right of ownership in their statutes.
The auditor should adopt reasonable
procedures to retain audit
documentation for a period of time
sufficient to meet the needs of his or
her practice and to satisfy any
applicable legal or regulatory
requirements for records retention.

CONFIDENTIALITY OF
WORKING PAPERS

The auditor has an ethical, and in some situations a

legal, obligation to maintain the confidentiality of
client information.Because audit documentation
often contains confidential client information, the
auditor should adopt reasonable procedures to
maintain the confidentiality of that information.
The auditor also should adopt reasonable
procedures to prevent unauthorized access to the
audit documentation.
Certain audit documentation may sometimes serve
as a useful reference source for the client, but it
should not be regarded as a part of, or a substitute
for, the clients accounting records.