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Introduction to phase II

Gathering and Evaluation of


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

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