The document discusses types of audit evidence and working paper documentation. It defines evidential matter and its relationship to audit objectives, procedures, and reports. It also describes different types of evidence including documentation, confirmation, analysis, inquiries, and observation as well as factors that affect their reliability. The document concludes by covering the purpose, organization, ownership and formats used for working papers.
The document discusses types of audit evidence and working paper documentation. It defines evidential matter and its relationship to audit objectives, procedures, and reports. It also describes different types of evidence including documentation, confirmation, analysis, inquiries, and observation as well as factors that affect their reliability. The document concludes by covering the purpose, organization, ownership and formats used for working papers.
The document discusses types of audit evidence and working paper documentation. It defines evidential matter and its relationship to audit objectives, procedures, and reports. It also describes different types of evidence including documentation, confirmation, analysis, inquiries, and observation as well as factors that affect their reliability. The document concludes by covering the purpose, organization, ownership and formats used for working papers.
The document discusses types of audit evidence and working paper documentation. It defines evidential matter and its relationship to audit objectives, procedures, and reports. It also describes different types of evidence including documentation, confirmation, analysis, inquiries, and observation as well as factors that affect their reliability. The document concludes by covering the purpose, organization, ownership and formats used for working papers.
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2002 McGraw-Hill Ryerson
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BASIC AUDITING CONCEPTS:
MATERIALITY, AUDIT RISK, AND EVIDENCE
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Part Two
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CHAPTER 4 AUDIT EVIDENCE : TYPES OF EVIDENCE, AND WORKING PAPER DOCUMENTATION
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Chapter 4
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EVIDENTIAL MATTER
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Third standard of field work states. Sufficient,
competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under examination. On a typical audit engagement, most of the auditor's work involves obtaining and evaluating evidence to test the fair presentation of the financial statements.
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THE RELATIONSHIP OF EVIDENTIAL MATTER TO THE AUDIT REPORT Financial Statements
AUDIT PROCEDURES Audit procedures are specific actions performed by the auditor to gather evidence to determine if specific audit objectives are being met. A set of audit procedures prepared to test audit objectives for a component of the financial statements is referred to as an audit program.
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BASIC CONCEPTS OF AUDIT EVIDENCE
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The nature of audit evidence
The sufficiency of audit evidence The appropriateness of audit evidence The evaluation of audit evidence
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THE NATURE OF AUDIT EVIDENCE
Accounting data that can be used to test audit objectives
include the books of original entry, related accounting manuals, and records such as worksheets and spreadsheets that support amounts in the financial statements. Many times these data are in electronic form. Corroborating audit evidence includes both written and electronic information such as cheques, records of electronic transfers, invoices, contracts, minutes, confirmations, and written representations.
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SUFFICIENCY OF AUDIT EVIDENCE
The auditor relies on evidence that is persuasive rather
than convincing in forming an opinion on a set of financial statements. This occurs for two reasons: Because of cost considerations, the auditor only examines a sample of the transactions that compose the account balance or class of transactions. Due to the nature of evidence, the auditor must often rely on evidence that is not perfectly reliable.
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THE APPROPRIATENESS OF AUDIT EVIDENCE
Evidence is considered appropriate when it is both
relevant and reliable Relevance - The evidence must be relevant to the audit objective being tested. Reliability - Reliability refers to whether the type of evidence can be relied upon to signal the true state of an assertion or audit objective.
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GENERAL FACTORS FOR ASSESSING
THE RELIABILITY OF EVIDENCE
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Independence of the source of the evidence.
Effectiveness of internal control. Auditor's direct personal knowledge.
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EVALUATION OF AUDIT EVIDENCE The auditor should to be thorough in searching for evidence and unbiased in its evaluation.
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TYPES OF AUDIT EVIDENCE
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Physical examination Reperformance Documentation Confirmation Analysis Inquiries of client personnel or management Observation
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DOCUMENTATION
Reliability of documentary evidence.
Internal versus external evidence
Documentary evidence related to audit objectives.
Vouching versus tracing
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CONFIRMATION
The reliability of evidence obtained through
confirmations is directly affected by factors such as The form of the confirmation. Prior experience with the entity. The nature of the information being confirmed. The intended respondent.
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RELIABILITY OF THE TYPES OF EVIDENCE Level of Reliability Type of Evidence High Medium
Low
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Physical examination Reperformance Documentation Confirmation Analytical procedures Enquiries of client personnel or management Observation 2002 McGraw-Hill Ryerson Limited.
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RELATIONSHIP OF EVIDENCE TO AUDIT OBJECTIVES AND ACTIVITIES
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Table 4-6 shows the relationship of the types of
evidence to audit objectives
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WORKING PAPERS
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Working papers have two functions:
to provide support for the auditor's report. to aid in the conduct and supervision of the audit
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TYPES OF WORKING PAPERS
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Most CA firms maintain working papers in
two types of files: permanent files current files
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FORMAT OF WORKING PAPERS
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Heading Indexing and cross-referencing Tick marks
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ORGANIZATION OF WORKING PAPERS
The auditor's working papers need to be organized so
that any member of the audit team (and others) can find the audit evidence that supports each financial statement account. See Figure 4-4.
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OWNERSHIP OF THE WORKING PAPERS
The working papers are the property of the auditor.
This includes not only working papers prepared by the auditor but also working papers prepared by the client at the request of the auditor.
