Audit Evidence PDF

Sheet (9) Audit Evidence 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. 1) Audit Evidence Decisions (namely, the audit program) A major d...

Sheet (9) Audit Evidence 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. 1) Audit Evidence Decisions (namely, the audit program) A major decision facing every auditor is determining the appropriate types and amounts of evidence needed to be satisfied that the client’s financial statements are fairly stated. There are four decisions about what evidence to gather and how much of it to accumulate: 1. Which audit procedures to use? 2. What sample size to select for a given procedure? 3. Which items to select from the population? 4. When to perform the procedures? 1. Audit Procedures: An audit procedure is the detailed instruction that explains the audit evidence to be obtained during the audit. It is common to spell out these procedures in sufficiently specific terms so an auditor may follow these instructions during the audit. 2. Sample Size: Once an audit procedure is selected, auditors can vary the sample size from one to all the items in the population being tested. 3. Items to Select: After determining the sample size for an audit procedure, the auditor must decide which items in the population to test. 4. Timing: An audit of financial statements usually covers a period such as a year. Normally, an audit is not completed until several weeks or months after the end of the period. The timing decision is affected by when the client needs the audit to be completed. Also, However, timing is also influenced by when the auditor believes the audit evidence will be most effective and when audit staff is available. 2) Persuasiveness of Evidence Audit standards require the auditor to accumulate sufficient appropriate evidence to support the opinion issued. The two determinants of the persuasiveness of evidence are appropriateness and sufficiency. First: Appropriateness is a measure of the quality of evidence, meaning its relevance and reliability in meeting audit objectives for classes of transactions, account balances, and related disclosures. 1- Relevance of Evidence: Evidence must pertain to or be relevant to the audit objective that the auditor is testing before it can be appropriate. 2- Reliability of Evidence: Reliability of evidence refers to the degree to which evidence can be believable or worthy of trust. Reliability depends on the following six characteristics of reliable evidence: 1. Independence of provider. 2. Effectiveness of client’s internal controls. 3. Auditor’s direct knowledge. 4. Qualifications of individuals providing the information. 5. Degree of objectivity. 6. Timeliness. Second: Sufficiency is a measure of the quantity of evidence. For some audit objectives, sufficiency of evidence is measured primarily by the sample size the auditor selects. 3) Combined Effect The persuasiveness of evidence can be evaluated only after considering the combination of appropriateness and sufficiency, including the effects of the factors influencing appropriateness and sufficiency. A large sample of evidence provided by an independent party is not persuasive unless it is relevant to the audit objective being tested. A large sample of evidence that is relevant but not objective is also not persuasive. Similarly, a small sample of only one or two pieces of highly appropriate evidence also typically lacks persuasiveness. 4) Persuasiveness and Cost The auditor’s goal is to obtain a sufficient amount of appropriate evidence at the lowest possible total cost. However, cost is never an adequate justification for omitting a necessary procedure or not gathering an adequate sample size.