1

1
SLAuS 500 Audit Evidence
04 October 2012
By Nilani De Silva
2
2
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Content
Introduction
Concept of audit evidence
Sufficient appropriate audit evidence
The use of assertions
Audit procedures
Compliance with International Standards
Effective date
3
SLAuS 500- AUDIT EVIDENCE
04 October 2012
4
Introduction
Purpose of the standard is :
Toestablishstandardsandprovideguidanceon
Whatconstituteauditevidence?
Quantityandqualityofauditevidencetobe
gathered
Availableauditprocedures
3
Auditor should obtain sufficient appropriate audit
evidence to be able to draw reasonable conclusions
on which to base the audit opinion.
5
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Auditors responsibility with respect to audit evidence
6
Recordsofinitialentries,
supportingdocs
invoices
contracts
mainledgerand
subsidiaryledgers
Journalentriesandother
adjustmentsnotreflectedin
formalJ/Es
Worksheetssuchascost
allocations
computations
reconciliations
disclosures
Minutesofmeetings Confirmations/
benchmarkinformation
Analysisreports
Control
manuals
SLAuS 500- AUDIT EVIDENCE
04 October 2012
4
What is meant by audit evidence?
Alltheinformationusedbyauditorin
arrivingattheconclusionsonwhichtheaudit
opinionisbased.
Includestheinformationintheaccounting
recordsunderlyingfinancialstatementsand
otherinformation.
7
SLAuS 500- AUDIT EVIDENCE
04 October 2012
8
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Quantity
Levelofauditrisk
Relevant Reliable
Quality
Sufficient
Howmuch?
Appropriate
Howgood?
Auditevidence
shallbe
Impacts
5
Relationship between Audit risk , Quality &
Quantity of audit evidence
Highertherisk higherthe
quantityofauditevidencerequired.
Higherthequality lowerthe
quantityofauditevidencerequired
Merelyobtainingmoreaudit
evidencemaynotcompensateits
poorquality.
9
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Higher
AuditRisk
HigherQty
ofaudit
evidence
Higher
Quality
Lower
Quantity
Generalisations about reliability of evidence :
10
SLAuS 500- AUDIT EVIDENCE
04 October 2012
MorereliablewhenitisobtainedfromanIndependentsource
outsidetheentity.
Internallygeneratedevidencearemorereliable,whencontrols
areeffective.
Evidenceobtaineddirectlybytheauditorratherthanindirectly
orbyinference.
Writtenevidenceismorereliablethantheothers.
Originaldocumentsofevidenceismorereliablethanthephotocopies.
6
When internally produced information is used
following shall be established;
accuracy
and
completeness of the information
11
SLAuS 500- AUDIT EVIDENCE
04 October 2012
More assurance is obtained through consistent
audit evidence from different sources /different
nature.
Auditor is not expected to obtain all the information
as conclusions can be reached by using sampling.
Necessarily rely on persuasive evidence than
conclusive.
12
SLAuS 500- AUDIT EVIDENCE
04 October 2012
7
13
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Management
Assertions
Audit
Objectives
AuditEvidence AuditReport
onFinancial
Statements
Financial
Statements
Audit
Procedures
Relationship of Financial Statement Assertions and the Audit
14
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Transactionsandevents
Occurrence
Completeness
Accuracy
Cutoff
Classification
Accountbalancesatperiodend
Existence
Rights&obligations
Completeness
Valuation&allocation
Financial Statement Assertions
Presentationanddisclosure
OccurrenceandRights&obligations
Completeness
Classification&understandability
Accuracyandvaluation
8
Given set of audit evidence may provide
evidence to certain assertions but not for
others.
Lets look at F/S assertions in bit more detail
15
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Inventory
Auditprocedure Physicalobservation
Assertionscovered existencenothingelse
Trade receivable
Auditprocedure Checkingsupportings for
subsequentsettlements.
Assertionscovered existenceandvaluation,
butnotcutoff.
16
SLAuS 500- AUDIT EVIDENCE
04 October 2012
9
Corroborating information obtained from a source
independent of the entity may increase the assurance
obtained from internal sources
Relationship between cost vs. benefit of obtaining
audit evidence is not valid if no alternatives.
17
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Auditor usually rely on persuasive evidence than
conclusive.
Auditor shall exercise professional skepticism in
evaluating quantity , quality(sufficiency) and
appropriateness of audit evidence to support audit
opinion.
18
SLAuS 500- AUDIT EVIDENCE
04 October 2012
10
Audit procedures for obtaining audit evidence
Risk assessment procedures
Test of controls
Substantive procedures
19
SLAuS 500- AUDIT EVIDENCE
04 October 2012
20
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Inherent
Risk
Control
Risk
Detection
Risk
Audit Risk
Any material
error at all?
Yes
Caught by
controls?
No
Caught by
our audit?
No
Wrong opinion
11
21
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Obtainingcomfort
Audit procedures for obtaining audit evidence
Inspectionofrecordsordocuments
Inspectionoftangibleassets
Observation
Inquiry
Confirmation
Recalculation
Reperformance
Analyticalprocedures
22
SLAuS 500- AUDIT EVIDENCE
04 October 2012
12
Compliance with ISAs
EnsurescompliancewithISA500inallmaterial
respects.
Effective Date
Effectiveforalltheauditscommencingonorafter
01Jan2010.
23
SLAuS 500- AUDIT EVIDENCE
04 October 2012
Thank you.
24
SLAuS 500- AUDIT EVIDENCE
04 October 2012