Question

Evidence is defined as any information used by the auditor to determine whether the
information being audited is stated in accordance with the established criteria.
i. Discuss the meaning of ‘appropriateness and ‘sufficiency’ of audit evidence.
[3 marks]

ii. Briefly explain on the following audit procedures:
a. Documentation.
b. Examination of physical assets.
c. Analytical procedures.
d. Inquiry.
f. Confirmation.

Answer 1

Audit evidence : As per SA-500 AUDIT EVIDENCE it is the information obtained by auditor by performing audit procedures in order to arrive at the conclusions on which the auditors opinion is based.

It includes both -

• Information contained in the books of account and financial statement and

• Any other information obtained by the auditor during the course of audit.

(i) Sufficiency and appropriateness of audit evidence :

* Sufficiency (of audit evidence) - sufficiency is the measure of the quantity of audit evidence

- the quantity of audit evidence needed is affected by the auditor's assessment of the risks of misstatement (the higher the assessed risks, the more audit evidence is likely to be required) and also quality of such evidence (the higher the quality, the less may be required)

* Appropriateness (of audit evidence) : Appropriateness is the measure of the quality of audit evidence, that is it's relevance and reliability in providing support for the conclusions on which the auditor's opinion is based.

- the reliability of audit evidence is influenced by its source and by its nature and is dependent on the individual circumstances under which it is obtained

(ii)

(a) Documentation :

- It refers to a record of audit procedures performed, relevant audit evidence obtained and conclusions the auditor reached. It is commonly known as "working papers" For example : Audit program, audit plan etc

- working papers are papers prepared and obtained by the auditor adn retained by him in connection with the performance of his audit.

- the auditor may include abstracts or copies of entitys records as a part of audit documentation.

* Manner of documenting the audit procedures :

In documenting the nature, timing and extent of audit procedures performed the auditor shall record :

- the characteristics of the specific items or matters tested

- persons who performed the audit work and the date on which such work was completed

- persons who reviewed the audit work performed and the date and extent of such review

(b) Examination of physical assets :

- it is the responsibility of management to carry out physical verification of fixed assets at appropriate intervals. However auditor should satisfy himself that such verification was done by observing

- the auditor should examine whether the method of verification was reasonable in the circumstances relating to such asset

- the auditor should examine whether the frequency of verification was reasonable in the circumstances of each case

- the auditor should test check the book records of fixed assets with the physical verification reports.

- the auditor himself satisfy that fixed assets have been valued and disclosed in the financial statements according to the generally accepted bases of accounting.

(c) Analytical procedures :

- it means evaluations of financial information through analysis of possible relationships among both financial and non financial data.

-Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount .

- the purpose is to assist the auditor in planning the nature timing and extent of other audit procedures

(d) Inquiry :

- inquiry consists of seeking information from knowledgeable persons, both financial and non financial, within the entity or outside the entity.

- inquiries may range from formal written inquiries to informal oral inquiries

- evaluation of responses to inquiries is an integral part of inquiry process

(e) confirmation :

- An external confirmation represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party (confirming party)

- it can be obtained in paper form or by electronic or other medium.