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Evidence and Documentation (Audit evidence (the only way to obtain…
Evidence and Documentation
Audit evidence
the only way to obtain reasonable assurance
sufficient appropriate evidence to reduce audit risk to an acceptably low level
whether the financial statements have been prepared in accordance with the applicable financial reporting framework
include information from accounting records and other sources both inside and outside of the company
Nature of audit evidence
Accounting records:
records of initial entries and supporting records
general and subsidiary ledgers
contracts
invoices
worksheets
adjustments to FS
Other information:
benchmarking
analysts's reports
control manuals
minutes from meetings
confirmations from third parties
Sufficiency and appropriateness of audit evidence
Sufficiency- a measure of quantity of audit evidence
High RMM, High quantity
High quality, Low quantity
Appropriateness- a measure of quality of audit evidence
Relevance- connection between audit procedure's purpose and evidence
Reliability- connection between evidence's source, nature and circumstances
independent source outside the entity
effectiveness of internal control
auditor's direct personal knowledge
documentary evidence
original document
Evaluation of audit evidence
-Proper evaluation of evidence requires an understanding of the types of evidence available and the reliability of available evidence
-auditor should be thorough and unbiased in evaluation
Audit testing hierarchy
1)Auditor understand the entity and its environment using the Risk Assessment Procedures
2) Test of control and substantive analytical procedure
3) Substantive test of details
Nature, Timing and Extent of audit evidence
Nature: relates purposes and specific audit procedure used to gather audit evidence
Relationship between risk and nature of testing:
High RMM, more relevant and reliable is the evidence must gather from substantive audit procedure
consider the reason for the risk: related to the level of CR, perform test of controls to evaluate effectiveness
if relate to nature of the account that has a low risk of material misstatement, use analytical procedures
if auditor has identified significant risk for a relevant assertion and perform only substantive procedures, must include test of details and analytical procedures
Timing: related to whether evidence is gathered at an interim basis or year end
High RMM, perform substantive procedures at or near year end
When perform at interim basis, consider whether additional evidence is needed for the remaining period
auditor should consider the company's control environment, the nature of the risk and the date or time period to which audit evidence relates in determining the timing of audit procedures
Extent: related to the amount of evidence gathered during internal control
High RMM, increase extent of an audit procedure
High RMM, use CAATs to test an entire population rather than only a sample