Question

1. What is audit evidence?

2. What are the factors that affect sufficiency and appropriateness of audit evidence?

3. An auditor typically works within economic limits. Explain this statement.

4. What are the generalizations on reliability of audit evidence?

5. Explain the relationship between assertions, audit objectives, and audit evidence.

Answer 1

1. Audit evidence: The evidence obtained by an auditor during the course of the audit in order to frame an opinion on the internal controls and financial reports.

2. Sufficiency of audit evidence is measured by the quantity of evidence obtained. Appropriateness is measured by the quality of audit evidence. Factors influencing Sufficiency and appropriateness of audit evidence are:

1. • Risk of material misstatement
   • Auditor's past experience with the business
   • Reliability of the audit evidence
   • Internal control and accounting system of the client
   • Materiality of the item.

3.Auditor's opinion is influenced by time and cost. He must decide if the obtained audit evidence is within the time and cost to express an audit opinion. Thus he works typically works within economic limits.

4. Generalisation about the reliability of audit:

• When it is obtained directly by the auditor
• When it is obtained from a period or entity independent of the client
• When it is in document, electronic or any other reliable medium
• Where controls are effectively working in case the evident is internally generated.

5. The auditor has to obtain sufficient audit evidence to support all assertion made by the management. Thus when assertion increases, audit objectives increases and so will be the collection of audit evidences.