Colegio de La Purisima Concepcion: School of The Archdiocese of Capiz Roxas City 1 Semester A.Y. 2020-2021

COLEGIO DE LA PURISIMA CONCEPCION
School of the Archdiocese of Capiz

Roxas City
COLLEGE OF BUSINESS, MANAGEMENT AND ACCOUNTANCY

1st Semester A.Y. 2020-2021
Auditing and Assurance Principles (Pr E 1)

Module 8
Audit Evidence/Substantive Procedures
Nature, Types and Significance of Audit Evidence

Audit Evidence – All information obtained by the auditor in arriving at the conclusions on which the audit
opinion is based. Audit evidence includes
1. Accounting Records – include records of initial accounting entries and supporting records.
 Checks and records of electronic fund transfer.
 Invoices.
 Contracts.
 The general and subsidiary ledgers, journal entries, and other adjustments to the financial
statements that are not reflected in formal journal entries.
 Records such as worksheets and spreadsheets supporting cost allocations, computations,
reconciliations and disclosures.
2. Corroborating information/supporting information
 Minutes of meetings.
 Confirmations received from third parties.
 Analysts’ reports.
 Comparable data about comparisons (benchmarking).
 Control manuals.
 Information obtained by the auditor from inquiry, observation and inspection. Perform only if wala
sang audit trail
 Other information developed by, or available to, the auditor to reach conclusions through valid
reasoning.
Accounting records alone do not provide sufficient audit evidence on which to base an audit opinion on the
financial statements.
Characteristics of Audit Evidence

 Sufficiency – quantity of audit evidence
 Appropriateness (Competence) – quality of audit evidence, its relevance and reliability.
The following generalizations about reliability of audit evidence may be useful:

1. Audit evidence is more reliable when it is obtained from independent sources outside entity.
2. Audit evidence that is generated internally is more reliable when the related controls imposed by the
entity are effective.
3. Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly or
by inference.
4. Audit evidence is more reliable when it exists in documentary form, whether paper, electronic, or other
medium.
5. Audit evidence provided by original documents is more reliable than audit evidence provided by
photocopies or facsimiles.
The amount and kinds of audit evidence required to support an informed opinion are matters for the auditor
to determine in the exercise of his professional judgement. In most cases, the auditor finds it necessary to
rely on evidence that is persuasive rather than convincing. However, the matter of difficulty and expense
involved in testing a particular item is not in itself a valid basis for omitting an audit procedure for which
there is no alternative.
Audit Procedures/Techniques
Course Facilitator: Alberth Justine de la Cruz Balgos, CPA

Roxas City
For each financial statement assertion, the auditor develops audit objectives. To achieve audit objectives,
and thereby address each financial statement assertion for each account, an auditor selects audit
procedures to acquire sufficient appropriate audit evidence.
Audit procedures are acts to be performed to satisfy audit objectives. The auditor obtains audit evidence to
draw reasonable conclusions on which to base the audit opinion by performing:
1. Risk assessment procedures – to obtain an understanding of the entity, including its internal control,
and its environment to assess the risks of material misstatement at the financial statement and
assertion levels.
-APOII, anal proc,observation,investigation,inspection
2. Further audit procedures –
a. Tests of Control – to test the operating effectiveness of control in preventing, or detecting and
correcting, material misstatements at the assertion level. They are not required in certain cases.
b. Substantive procedures – o detect material misstatements at the assertion level. They are applied
when the auditor’s purpose is to see whether the peso amount (or units) of an account is properly
stated. Substantive procedures for material classes of transactions, account balances and
disclosures are always required to obtain sufficient appropriate audit evidence.
Types of Substantive Procedures
1. Substantive analytical procedures – consist of the analysis of significant ratios and trends including the
resulting investigation of fluctuations and relationships that are inconsistent with other relevant
information or which deviate from predictable amounts.
Analytical procedures are used for three purposes:

a. Planning (Risk Assessment). To assist in planning the nature, timing and extent of other auditing
procedures. (required)
 Enhancing the auditor’s understanding of the client’s business.
 Identifying specific risk areas.
 Identifying unusual transactions and events.
b. Substantive procedure. To obtain evidential matter about particular assertions related to account balances
or classes of transactions.-financial data, not required analytical procedures
c. Overall review. To assist in assessing the conclusions reached and in the evaluation of the overall financial
statement presentation. (required)
2. Test of details – test used to determine the actual details making u an account balance, classes of
transactions or disclosures.
a. Tests of transactions. These are tests of the processing of individual transactions by inspection of the
documents and accounting records involved in processing.
b. Tests of balances. These are tests applied directly to the details of balances in general ledger
accounts.
c. Tests of disclosures. These are procedures to evaluate whether the overall presentation of the
financial statements, including the related disclosures, is in accordance with the applicable financial
reporting framework.
More type of evidences are obtained by using test of details of balances; however this is the most costly.
Analytical procedures are least costly to perform.
Commonly used audit procedures:
1. Inspection of records or documents.

2. Inspection of tangible assets – physical examination of the assets.
3. Observation - looking at the process or procedure being performed by others.
4. Inquiry – seeking information of knowledgeable persons, both financial and non-financial, throughout the
entity or outside the entity. It provides information not previously possessed by the auditor.
5. Confirmation – the process of obtaining representation of information of or of an existing condition
directly form third party. (Required for accounts receivable)
6. Recalculation – checking the mathematical accuracy of documents or records.

Roxas City
7. Re-performance – auditor’s independent execution of procedures or controls that were originally

performed as part of the entity’s internal control.
8. Analytical procedures – consists of evaluation of financial information made by a study of plausible
relationships among both financial and non-financial data.
9. Trace – to follow a transaction through the steps of the system.
10. Vouch – to prove accuracy of accounting entries by tracing to supporting documents.
audting around- black box approach-input and output

With – use computer as tool
Through- white box,input kag kung paano mag process data
Audit Documentation (Working Papers)
Audit documentation (working papers) – the records kept by the auditor of the procedures applied, relevant
evidence obtained and the pertinent conclusions reached in the engagement. The prpimary objectives of
working papers are:
 Assist in the planning and performance of the audit.

 Assist in the supervision and review of audit work.
 Record the audit evidence resulting from the audit work performed to support the auditor’s opinion.
The quantity, type and content of working papers may vary with the circumstances but they should be
sufficient to show that the accounting records agree or reconcile with the financial statements , and that the
standards of fieldwork have been observed.
The practitioner’s judgement about the quantity, for, and content of working papers for a particular
engagement should be guided by factors such as:
 Nature of engagement.
 Nature of report.
 Nature and complexity of business.
 Nature and condition of the entity’s accounting and internal control system.
 Needs in the particular circumstances for direction, supervision and review of work performed by
assistants.
 Specific audit methodology and technology used in the course of the audit.
Types of Working Papers
1. Audit administrative working papers. ex. audit program

2. Working trial balance.
3. Lead schedules.
4. Supporting schedules.
5. Summary of adjusting and reclassifying entries.
Groupings of Audit Working Papers

1. Current File-halin sa jan. asta sa current month
2. Permanent File. – for the last 2,3 years,previous years
3. Correspondence (administrative) File. – sulat ni client
4. Tax File. – tax services
Ownership and Custody of Working Papers
All working papers, schedules and memorandum made by a CPA and his staff in the course of an
examination; including those prepared and submitted by the client incident to or in the course of an
examination, by such CPA except reports submitted by a CPA to a client shall be and remain the property of
such certified public accountant in the absence of a written agreement between the CPA and the client to
the contrary.
Confirmation

Roxas City
External confirmation – the process of obtaining and evaluating audit evidence through a direct
communication from a third party in response to a request for information about a particular item affecting
assertions made by management in the financial statements.
External confirmation of an account receivable, existence and cut-off assertions; In the case of goods held
on consignment, existence and the rights and obligations assertions.
Types of external confirmation:

1. Positive external confirmation. Request asks the respondent to reply to the auditor in all cases either by
indicating the respondent’s agreement with the given information, or by asking the respondent to fill in
information.
2. Negative external confirmation. Request asks the respondent to reply only in the event of disagreement
with the information provided in the request. Used when:
 The assessed level of inherent and control risk is low.
 A large number of small balances is involved.
 A substantial number of errors is not expected.
 The auditor has no reason to believe that respondents will disregard theses requests.
References:
Chen, Harvey S. (2018) Auditing Theory vol. 1
Iloilo City, Philippines.
…End of topic…

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COLEGIO DE LA PURISIMA CONCEPCION

School of the Archdiocese of Capiz

COLLEGE OF BUSINESS, MANAGEMENT AND ACCOUNTANCY

Auditing and Assurance Principles (Pr E 1)

Nature, Types and Significance of Audit Evidence

Characteristics of Audit Evidence

The following generalizations about reliability of audit evidence may be useful:

Course Facilitator: Alberth Justine de la Cruz Balgos, CPA

Types of Substantive Procedures

Analytical procedures are used for three purposes:

Commonly used audit procedures:

1. Inspection of records or documents.

Course Facilitator: Alberth Justine de la Cruz Balgos, CPA

7. Re-performance – auditor’s independent execution of procedures or controls that were originally

audting around- black box approach-input and output

Audit Documentation (Working Papers)

 Assist in the planning and performance of the audit.

Types of Working Papers

1. Audit administrative working papers. ex. audit program

Groupings of Audit Working Papers

Ownership and Custody of Working Papers

Course Facilitator: Alberth Justine de la Cruz Balgos, CPA

Types of external confirmation:

Course Facilitator: Alberth Justine de la Cruz Balgos, CPA

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