Lecture 5

Audit Evidence

Adapted from 2014 Pearson Education

BASED ON WHAT?

Adapted from 2014 Pearson Education

 Nature of evidence
Learning
Objectives Audit evidence decisions

Pursuasiveness of evidence

Types of evidence

Analytical procedures

Audit documentation

3
Nature of
Evidence

• Any information used by the auditor to determine whether

the information being audited is stated in accordance with
established criteria
• The use of evidence is not unique to auditors
• Evidence is also used by scientists, lawyers, and historians

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Audit Evidence Decisions

1. Which audit procedures to use

2. What sample size to select for a given procedure
3. Which items to select from the population
4. When to perform the procedures (timing)
 It includes a list of the audit procedures
the auditor considers necessary.

Ø Sample sizes
Ø Items to select

Ø Timing of the tests

Many auditors use audit software

packages to generate audit programs.
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 Nature of evidence
Learning
Objectives Audit evidence decisions

Pursuasiveness of evidence

Types of evidence

Analytical procedures

Audit documentation

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 Two determinants:

Appropriateness Sufficiency

The persuasiveness of evidence can be evaluated only after

considering the combination of appropriateness and sufficiency
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Six Characteristics of Reliable
Evidence

1. Independence of provider
2. Effectiveness of client’s internal controls
3. Auditor’s direct knowledge
4. Qualification of individual providing the information
5. Degree of objectivity
6. Timeliness
Decisions Qualities Affecting Persuasiveness
Audit procedures and timing Appropriateness

Relevance

Reliability
Independence of provider
Effectiveness of internal controls
Auditor's direct knowledge
Qualifications of provider
Objectivity of evidence
Timeliness

Sample size and items to select Sufficiency

Adequate sample size
Selection of proper population items
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 Persuasiveness
and Cost

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In making decisions about The auditor’s goal is to

evidence for a given audit, obtain a sufficient amount of
both persuasiveness and appropriate evidence at the
cost must be considered. lowest total cost.
 Nature of evidence
Learning
Objectives Audit evidence decisions

Pursuasiveness of evidence

Types of evidence

Analytical procedures

Audit documentation

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 Physical
Examination
Confirmation
Observation

Audit
Reperformance Inspection
Evidence

Analytical
Recalculation
Client Inquiries procedures

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 1. Physical
Examination

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• It is the inspection or count by the auditor of a tangible asset.

• This type of evidence is most often associated with inventory
and cash.
 Source: ketoanantam.com
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 2. Confirmation
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The receipt of a direct written response from a 3rd party verifying

the accuracy of information that was requested by the auditor.

US standard:
Must confirm AR
Auditor control mailing & receiving confirmation
Accept Electronic confirmation
International standard: not require
Information often Confirmed

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7-19 Source: congly.vn
 3. Inspection
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It is the auditor’s examination of the

client’s documents and records.

Internal documents External documents

 4. Inquiries of the Client
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It is the obtaining of written or oral information from the
client in response to questions from the auditor.
 5. Recalculation
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Involves rechecking a sample of calculations made by

the client.
 6. Reperformance
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The auditor’s independent tests of client accounting

procedures or controls that were originally done as part
of the entity’s accounting and internal control system.
 7. Observation

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1. Use one’s senses to assess client activities.

2. Tour plant to obtain a general impression of client’s facilities.
3. Observation is rarely sufficient by itself.
4. Often need to corroborate with another kind of evidence.
 8. Analytical
Procedures

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1. Understand the client’s industry and business

2. Assess the entity’s ability to continue as a going concern
3. Indicate the presence of possible misstatements in the
financial statements
4. Reduce detailed audit tests
 Analytical procedures may be performed
at any of three times during an
engagement.

1. Required in the planning phase

2. Often done during the testing phase
3. Required during the completion phase

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Timing and Purposes of Analytical Procedures

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Five Types of
Analytical Procedures

Compare client data with:

1. Industry data
2. Similar prior-period data
3. Client-determined expected results
4. Auditor-determined expected results
5. Expected results using nonfinancial data.
Appropriateness of Types of Evidence

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Application of Types of evidence to the three Evidence
Decisions

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 Terms Type of Evidence
Examine Inspection
Scan Analytical procedures
Read Inspection
Compute Analytical procedures
Recompute Recalculation
Foot Recalculation
Trace Inspection/Reperformance
Compare Inspection
Count Physical examination
Observe Observation
Inquiries Inquiries of client
Vouch Inspection

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 Nature of evidence
Learning
Objectives Audit evidence decisions

Pursuasiveness of evidence

Types of evidence

Analytical procedures

Audit documentation

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 Audit Documentation
Audit documentation is the record of the audit
procedures performed, relevant audit
evidence, and conclusions the auditor
reached.
 Audit Documentation
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• Purposes of audit documentation

• Ownership of audit files
• Confidentiality of audit files
• Requirements for Retention of audit Documentation
 Audit File
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Contents and
Organization
 Permanent Files

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These files are intended to

contain data of a historical
or continuing nature
pertinent to the current audit.
 Current Files

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1. Audit program
2. General information
3. Working trial balance
4. Adjusting and
reclassification entries
5. Supporting schedules
 Relationship of
Audit
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Financial Statements
Types of Supporting
Schedules
1. Analysis
2. Trial balance or list
3. Reconciliation of amounts
4. Tests of reasonableness
5. Summary of procedures
6. Examination of supporting documents
7. Informational
8. Outside documentation
 Preparation of Audit
Documentation
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• Proper identification of each file

• Files indexed and cross-referenced
• Clear indication of work performed
• Include sufficient information
• State conclusions reached
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