ACCG340 Study Guide - Final Guide: Audit Evidence, Direct Bank, Audit Risk
19 Jun 2018
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WK 5
Audit evidence – ASA500
1. Audit evidence is a fundamental concept in auditing by which the auditor achieves
the objective of reasonable assurance that none of management’s assertions is
materially misstated, and 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,
calculations, etc.
Information from inquiry, observations,
inspection and physical examination
Related accounting manuals
All other information obtained or
developed by the auditor
2. The auditor is required to design and perform audit procedures to
obtain
sufficient
appropriate audit
evidence
to be able to
draw reasonable conclusions
on which to
base the auditor’s opinion.
Audit evidence is obtained from performance of the 3 audit procedures:
3. Sufficient & Appropriate Audit Evidence - ASA500.5
a)
Sufficient
= measure of
quantity
(concern with sample and the nature of
target)
b)
Appropriate
= measure of
quality
(MORE important; i.e. relevance and
reliability)
Both are a
function of the assessment of risk
of material misstatement and are
interrelated
4. 5 Types/forms of audit evidence
a) oral
b) visual observations
c) physical
d) electronic
e) documentary:
i. accounting records &
supporting/source
documentation
ii. minutes of meetings
iii. confirmations
iv. written representations
v. analytical procedures results
5. Sources of audit evidence - ASA500.A1 & A7-A9
a) Evidence can be:
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1. Created by external parties and transmitted directly to auditor
2. Created by external parties and held by client
3. Created and held by client
4. Electronic documents
b) The nature and source of the evidence
affect the level of assurance
the auditor
derives from the information
6. Reliability of audit evidence
Audit procedures in response to assessed risks - ASA500.A14-A25
1. 7 TYPES of Audit procedures (
methods and techniques
used to obtain audit evidence):
1. Enquiry
2. Inspection (includes tracing and vouching)
3. Observation
4. External confirmation
5. Re-calculation
6. Re-performance
7. Analytical procedures
These may be used as risk assessment procedures, tests of controls or substantive
procedures, depending on the context in which they are applied by the auditor
(ASA500.A11)
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Many of these procedures can be performed or facilitated through the use of
generalized audit software
(GAS)
2. Audit procedures: Enquiry à test of control & test of details
a) Consists of seeking information of
knowledgeable persons
, both financial &
non-financial, within or outside the entity.
b)
Evaluating responses
to enquiries is integral part of enquiry process
i. e.g. Enquire of sales personnel concerning possible excess or obsolete
inventory items to identify slow-moving, excess, defective or obsolete
items included in inventory
3. Audit procedures: Inspection and Observation
a) Inspection à test of control & test of details
i. Involves
examining records
or documents, whether internal or external, in
paper form, electronic form, or other media, or a physical examination of
an asset.
ii. e.g. Select a sample of inventory lines and compare with suppliers’ invoices
to ensure inventories are properly stated at cost
b) Observation à test of control
i. Consists of
looking at a process
or procedure being performed by others
(limited to specific point in time)
ii. e.g. Observe inventory test counts by entity’s personnel
4. Audit procedures: External confirmation à test of details
a) Represents audit evidence obtained as a
direct written response
to the auditor
from a
3rd party
, in paper form, or by electronic or other medium
b) Often performed in addressing/verifying account balances
c) Confirmations often OBTAINED:
Information
Source
Cash at bank
Bank/s
Accounts receivables
Customer/s
Owned inventory on consignment
/ external warehouses
Consignee / Warehouse
Accounts payable
Creditor
Other loans/payables
Lender/financier
5. Audit procedures: Re-calculation and Re-performance
a) Re-calculationà test of details
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Document Summary
Audit evidence asa500: audit evidence is a fundamental concept in auditing by which the auditor achieves the objective of reasonable assurance that none of management"s assertions is materially misstated, and consists of: Documents e. g. cheques, authorisations for direct bank transfers, invoices, contracts, etc. Information from inquiry, observations, calculations, etc. inspection and physical examination. Audit procedures in response to assessed risks - asa500. a14-a25: 7 types of audit procedures (methods and techniques used to obtain audit evidence), enquiry, inspection (includes tracing and vouching, observation, external confirmation, re-calculation, re-performance, analytical procedures. These may be used as risk assessment procedures, tests of controls or substantive procedures, depending on the context in which they are applied by the auditor (asa500. a11) Lender/financier: audit procedures: re-calculation and re-performance, re-calculation test of details. Consists of checking the mathematical accuracy of documents or records (manually or electronically) e. g. multiplying inventory on hand by inventory cost price to check inventory valuation: re-performance test of control.
