Evidence Audit Evidence • Information obtained by the auditor in arriving at the conclusions on which audit opinion was based; • Any factual matter available to the auditor from which he may know or infer the related truth or falsity of the assertions in the financial statements; • It is persuasive rather than conclusive. What constitute Audit Evidence Accounting Records Categories of Assertions Classes of Transactions and Events Sufficient Appropriate Evidence Factors Other matters to be considered in gathering evidence • Audit evidence is more persuasive when items of evidence from different sources or of a different name are consistent; • Consider the relationship between the cost of obtaining audit evidence and the usefulness of the information obtained; • Express a qualified opinion or a disclaimer of opinion if he is unable to gather evidence. Competence or Appropriateness of Evidence • Relevance of the evidence to the particular assertion being tested • Objectivity of the evidence • Qualifications of the provider of evidence • Timeliness of the evidence Hierarchy of Evidential Matter (as to competence) 1. An auditor’s direct personal knowledge obtained through physical observation and his own mathematical computations (most competent) 2. Documentary evidence obtained directly from independent external sources (external) 3. Documentary evidence has originated outside the client’s data processing system but which has been received and processed by the client (external-internal) 4. Internal evidence consisting of documents that are produced, circulated and finally stored within the client’s information system (low competence) 5. Verbal and written representations given by the client’s officers, directors, owners and employees (least competent) Procedures for Obtaining Audit Evidence Inspection of records or documents • Inspection of internal and external documents (documents used by client and its supporting documents) • Verification of inventory, cash, fixed tangible assets, securities and notes receivable. Observation • Looking at the process or procedures being performed by others Confirmation • Obtaining a representation directly from a third party Inquiry • Seeking information both financial and non-financial of knowledgeable persons inside and outside the entity through the client’s representation letter (management’s representation) Recalculation • Checking the mathematical accuracy of source documents and accounting records or of performing independent calculations. Reperformance • Independent execution of procedures or controls that were originally performed as a part of internal control, either manually or using CAATs. Analytical procedures • Evaluation of financial information made by a study of plausible relationships among both financial and non- financial data. Types of Confirmation Positive Confirmation Audit Procedures and Evidence for Accounting Estimates Audit Working Papers Audit Working Papers Consideration in the Working Papers Division of Working Papers Current Files Qualities of Working Paper Complete Factual, accurate and free from clerical and computational error Clearly indicates the nature and extent of work performed Concise and limited only to essentials Prepared in a neat and orderly manner to facilitate review of work done Audit Sampling Sampling Audit Sampling Testing Procedures do not involve Audit Sampling Non-statistical Sampling Haphazard Sampling Statistical Sampling Random Selection Statistical and Non-Statistical Sampling Random Selection