Question

Explain the relationships among auditing standards, types of evidence, and four audit evidence decisions.

Answer 1

Audit evidence refers to information or data that use or collect by auditors as part their audit works to conclude their opinion on whether or not financial statements are prepared in all material respect and in accordance with the applicable financial frameworks.

Before auditors could make the conclusion on the financial statements as a whole or any part, they need to make sure that the evidence they obtain is sufficient enough with appropriate quality to make the conclusion.

Types of audit evidence:

Auditors use audit evidence in many different forms and sources. Those audit evidence could be data or information, physical or nonphysical. For an example of audit evidence:

• Financial statements
• Accounting information
• Bank accounts
• Management Accounts
• Fixed Assets Register
• Payrolls Listing
• Banks Statements
• Bank confirmation
• Invoices
• Receipts
• And others documents use by businesses to support financial transactions or events in the financial statements.

Audit evidence could also form in video, email, audio, and verbal.

Audit Evidence Decisions

Major decision of an auditor involves determining the appropriate type and amount of evidence. In this judgment the cost factor should be considered.

The auditors' decisions on evidence accumulation can be broken down in to four sub decisions:

• Which audit procedure to use (Audit Procedure?)
• Which sample size to select for a given procedure (Sample Size?)
• Which items to select from population (Items??)
• When to perform the procedures (Timing)

1. Audit procedures

It is a detailed instruction for the collection of a type of audit evidence that is to be obtained at some time during the audit. The instructions should be clearly and specifically stated.

Example: - Obtain cash disbursement journal and compare the payer name, amount, and date on the cancelled cheque with cash disbursement journal.

2. Sample Size

After selection of audit procedure, the decision of how many items to test must be made by the auditor for each audit procedures.

Example: - If 60,000 checks are recorded in cash disbursement journal, only

      400 may be selected.

3. Items to Select

Following the sample size selection, it is necessary to decide which items in the population to test.

Example: - The auditor may see the 400 checks based on random selection, weakly selection, amount etc.

4. Timing

The timing decision is affected by when the clientneeds the audit to be completed. Also, it can be affected by the auditors' belief on effective timing for accumulation and the availability of audit staff.

Example:- the auditor often prefer to count inventory up close to the balance sheet dates.

The audit procedure often incorporates the other three sub decisions.

   Example: - obtain the October cash disbursement journal and compare the payee, name, amount, and date on the cancelled cheque with cash disbursement journal for a randomly selected sample of 40 cheque numbers.