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Auditing Audit Evidence (Bsa-500) Lecture # 11: Assertions Used by The Auditor Fall Into The Following Categories

Audit evidence is information used by auditors to arrive at conclusions and issue an audit opinion. It includes accounting records and other information. Management is responsible for financial statements based on accounting records, which auditors test to determine if they agree with financial statements. Sufficient and appropriate audit evidence is reliable, relevant, and provides support for assertions. More reliable evidence comes from independent sources, effective controls, direct observation, and original documents rather than copies. Auditors use assertions about transactions, account balances, and disclosures to assess risks and design audit procedures to obtain evidence through inspection, observation, inquiry, confirmation, recalculation, re-performance, and analytical procedures.

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117 views3 pages

Auditing Audit Evidence (Bsa-500) Lecture # 11: Assertions Used by The Auditor Fall Into The Following Categories

Audit evidence is information used by auditors to arrive at conclusions and issue an audit opinion. It includes accounting records and other information. Management is responsible for financial statements based on accounting records, which auditors test to determine if they agree with financial statements. Sufficient and appropriate audit evidence is reliable, relevant, and provides support for assertions. More reliable evidence comes from independent sources, effective controls, direct observation, and original documents rather than copies. Auditors use assertions about transactions, account balances, and disclosures to assess risks and design audit procedures to obtain evidence through inspection, observation, inquiry, confirmation, recalculation, re-performance, and analytical procedures.

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Md Joinal Abedin
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AUDITING

AUDIT EVIDENCE (BSA-500)


Lecture # 11

Introduction
“Audit evidence” is all the information used by the auditor in arriving at the conclusions on which
the audit opinion is based, and includes the information contained in the accounting records
underlying the financial statements and other information.

Management Responsibility
Management is responsible for the preparation of the financial statements based upon the
accounting records of the entity. The auditor obtains some audit evidence by testing the accounting
records, for example, through analysis and review, re-performing procedures followed in the
financial reporting process, and reconciling related types and applications of the same information.
Through the performance of such audit procedures, the auditor may determine that the accounting
records are internally consistent and agree to the financial statements.

Sufficient Appropriate Audit Evidence


Sufficiency is the measure of the quantity of audit evidence. Appropriateness is the measure of the
quality of audit evidence; that is, its relevance and its reliability in providing support for, or
detecting misstatements in, the classes of transactions, account balances, and disclosures and
related assertions.

Reliability of audit evidence


 Audit evidence is more reliable when it is obtained from independent sources outside the entity.
 Audit evidence that is generated internally is more reliable when the related controls imposed
by the entity are effective.
 Audit evidence obtained directly by the auditor (for example, observation of the application of a
control) is more reliable than audit evidence obtained indirectly or by inference (for example,
inquiry about the application of a control).
 Audit evidence is more reliable when it exists in documentary form, whether paper, electronic,
or other medium (for example, a contemporaneously written record of a meeting is more
reliable than a subsequent oral representation of the matters discussed).
 Audit evidence provided by original documents is more reliable than audit evidence provided
by photocopies or facsimiles.

The Use of Assertions in Obtaining Audit Evidence


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. The auditor uses assertions in
assessing risks by considering the different types of potential misstatements that may occur, and
thereby designing audit procedures that are responsive to the assessed risks.

Assertions used by the auditor fall into the following categories:


1. 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.

Md. Mokhlesur Rahman Mozid, ACMA


 Accuracy—amounts and other data relating to recorded transactions and events have been
recorded appropriately.
 Cutoff—transactions and events have been recorded in the correct accounting period.
 Classification—transactions and events have been recorded in the proper accounts.

2. 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.
 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.

3. Assertions about presentation and disclosure:


 Occurrence and rights 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 amounts.

Audit Procedures for Obtaining Audit Evidence


The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit
opinion by performing audit procedures to:

 Obtain an understanding of the entity and its environment, including its internal control, to
assess the risks of material misstatement at the financial statement and assertion levels
(audit procedures performed for this purpose are referred to in the BSAs as “risk assessment
procedures”);
 When necessary or when the auditor has determined to do so, test the operating
effectiveness of controls in preventing, or detecting and correcting, material misstatements
at the assertion level (audit procedures performed for this purpose are referred to in the
BSAs as “tests of controls”); and
 Detect material misstatements at the assertion level (audit procedures performed for this
purpose are referred to in the BSAs as “substantive procedures” and include tests of details
of classes of transactions, account balances, and disclosures and substantive analytical
procedures).

Inspection of Records or Documents


Inspection consists of examining records or documents, whether internal or external, in paper form,
electronic form, or other media. Inspection of records and documents provides audit evidence of
varying degrees of reliability, depending on their nature and source and, in the case of internal
records and documents, on the effectiveness of the controls over their production.

Md. Mokhlesur Rahman Mozid, ACMA


Inspection of Tangible Assets
Inspection of tangible assets consists of physical examination of the assets. Inspection of tangible
assets may provide reliable audit evidence with respect to their existence, but not necessarily about
the entity’s rights and obligations or the valuation of the assets. Inspection of individual inventory
items ordinarily accompanies the observation of inventory counting.

Observation
Observation consists of looking at a process or procedure being performed by others. Examples
include observation of the counting of inventories by the entity’s personnel and observation of the
performance of control activities.

Inquiry
Inquiry consists of seeking information of knowledgeable persons, both financial and non-financial,
throughout the entity or outside the entity. Inquiry is an audit procedure that is used extensively
throughout the audit and often is complementary to performing other audit procedures. Inquiries
may range from formal written inquiries to informal oral inquiries.

Confirmation
Confirmation, which is a specific type of inquiry, is the process of obtaining a representation of
information or of an existing condition directly from a third party. For example, the auditor may
seek direct confirmation of receivables by communication with debtors.

Recalculation
Recalculation consists of checking the mathematical accuracy of documents or records.
Recalculation can be performed through the use of information technology.

Re-performance
Re-performance is the auditor’s independent execution of procedures or controls that were
originally performed as part of the entity’s internal control, either manually or through the use of
CAATs, for example, re-performing the aging of accounts receivable.

Analytical Procedures
Analytical procedures consist of evaluations of financial information made by a study of plausible
relationships among both financial and non-financial data.

Md. Mokhlesur Rahman Mozid, ACMA

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