The document discusses audit evidence and procedures for gathering evidence. It defines audit evidence and its basic principles of independence, integrity, and objectivity. It describes the sources of audit evidence, including physical examination, confirmations, documentation, analytical procedures, inquiries, reperformance, and observation. It discusses factors like audit risk, reliance on controls, materiality, and reliability that influence evidence. It also covers the appropriateness, relevance, reliability, and direction of testing for audit evidence. Finally, it discusses substantive procedures used to detect material misstatements.

1. 
Audit
Evidence

2. 
 Basic principle
 sources
1. Audit evidence

3. 
 Independence
 Integrity
 Objectivity
 Professional behavior
 Technical standard
Basic Principles

4. 
 Nature (oral,written,visual)
 Evaluation
 Direct or indirect
 Internal or External
SOURCES

5. 
Factors
 Audit risk
 The nature of internal control
 Reliance on effective controls
 (cake) cumulative audit knowledge and experience
 Materiality
 Audit findings
 Source and reliability of info
2. Sufficient

6. 
 Derived from understanding the business its
environment and controls
Audit risk

7. 
The nature of control should be applied
Computerised or manual
The nature of internal
control

8. 
 It includes preliminary understandings and its
evalutions.
Reliance on effective
controls

9. 
 Immaterial items require little ,if any, evidence (e.g.
“reasonableness test”)
Materiality

10. 
 Its includes error may require further audit work to
be carry out.
Audit findings

11. 
How persuasive is the evidence ? Does all the evidence
point to the same conclusion ?
Source and reliability of
info

12. i. Interrelationship
ii. Relevance
iii. Reliability
iv. Direction of testing

13. 
 Appropriateness is interrelated with sufficiency.
i. Interrelationship
Appropriate
Relevance Reliable

14. 
 Account balance
 Transactions and events
 Presentation and disclosures
ii. Relevance

15. 
 Occurrence
 Completeness
 Accuracy
 Cut-off
 Classification
 Understandability
 Existence
 Rights and obligations
 Valuation and allocation
ii. Relevance(assertions)

16. 
Reliability general assumptions:
 External & internal
 Direct & indirect
 Written & oral
 consistency
iii.Reliability

17. 
 Overstatement
 understatement
iv.Direction of testing

19. 
Procedures for Gathering
Evidence
Types of Audit Evidence

20. 
Types of Audit Evidence
A. Physical examination
B. Confirmations
C. Documentation
D. Analytical Procedures
E. Inquiries of the Client
F. Reperformance
G. Observation

21. 
Physical
Examination(inspection)
Inspection or count by
the auditor of a tangible
asset.
Different from
examining
documentation is that
the asset has inherent
value.

22. 
Confirmations and Information Often
Confirmed
Confirmations may be positive or negative
Positive Confirmations
 Asks for response even if
balance is correct.
 More reliable than
negative confirmations.
Negative Confirmations
 Asks for a response only
is if balance incorrect.
 Uncertainty associated
with no response.

23. 
Confirmations and Information
Often Confirmed
Information
Assets
 Cash in bank (example)
 Accounts receivable
 Notes receivable
 Owned inventory out on
consignment
 Inventory held in public
warehouses
 Cash surrender value of life
insurance
Source
Bank
Customer
Maker
Consignee
Consignee
Insurance co.

24. Documentation
 Types of Documents
 Document Vouching
 Document Tracing

25. 
Types of Documents
Internal Document
 Prepared and used within
client company. Does not
go outside the client.
External Document
 Document has been in
hands of an outside party
to the transaction.
 More reliable than
internal documents.

26. 
Analytical procedures are one of many financial
audit processes which help an auditor understand
the client's business and changes in the business,
and to identify potential risk areas to plan other audit
procedures
Analytical Procedures

27. 
 Auditor obtains information from the
client in response to questions.
 Although much evidence is obtained
through inquiry, it can not be regarded
as conclusive and may be biased in the
client’s favor.
Inquiries

28. 
Financial statement assertions are management's explanation
about the recognition, measurement, presentation and disclosure of
information in the financial statements.
Financial Statement Assertions(cont.)

29. 
Existence; an asset or liability exists at a given data . e.g.
1).A computer is recorded on the asset register. Does it really exist?
Occurrence; The transaction or event actually took place during the
period. e.g.
1).Revenue was recorded . Did the organization really make the sale?
2).Expense was recorded. Was the expense actually incurred?
Financial Statement
Assertions(cont.)

30. 
Cutoff; Transactions and events have been recorded in the
correct accounting period.
Classification; The transaction have been recorded in the
proper account.
Completeness; all transaction that should have been
recorded.
Accuracy; The transaction were recorded at the proper
amount or revenue or with out any error.
Financial Statement Assertions

31. 
Substantive procedures are designed to detect
material misstatements at the assertion level.
They comprise tests of details and
substantive analytical procedures.
5. Substantive
procedures

32. 
Procedures consist of the evaluation of financial
information in audit, made by a study of
pausible relationships among both financial
and non-financial data.
Analytical Procedure -
Definition

33. Substantive Procedures
 Aim
 Tests of account balances
 Tests of classes of transactions
 Tests of disclosures
 One may change the scope of audit procedures by
changing the (NTE, or re-ordered as NET):
 Nature (type and form)
 Timing (when performed)
 Extent (quantity of evidence obtained)

34. 
Holding the extent of procedures constant, one may
increase the scope of procedures (make them more
effective) by either changing the
 Nature-- obtain more reliable evidence
 often externally generated evidence.
 Timing--wait until year-end to obtain evidence from
entire set of transactions as contrasted to performing
interim testing, say two months prior to year-end and
simply updating those procedures.
Nature and Timing of Procedures

35. 
Holding other factors such as the nature and timing of
procedures constant:
 The greater the risk of material misstatement, the greater
the needed extent of substantive procedures
 The main way to increase the extent of audit procedures is
to examine more items
 Sample sizes should reduce detection risk so as to restrict
audit risk to a low level
Extent of Procedures

36. 
The End