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Audit Evidence & Financial

Statement Assertions

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Key ISAs

ISA 200 Overall Objectives of the IndependentAuditor and the Conduct of an Audit

in Accordance with Internal Standards

on Auditing

ISA 500 Audit EvidenceISA 315 Identifying and assessing risks of material

misstatement through understanding the

entity and its environment

ISA 330 The auditors responses to assessed risk

ISA 520 Analytical procedures

ISA 570 Going concern

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Why is audit evidence important?

Auditors should obtain sufficient appropriate auditevidence to be able to draw reasonable conclusions

on which to base the audit opinion

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But what is it?

Audit evidence is the information used to get to theconclusion on which to base an opinion

It includes:

Information contained in the accounting records

underlying the financial statements; and Other information (e.g. management expert)

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So we have some key words

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Auditors should obtain sufficientappropriate auditevidence to be able to draw reasonable conclusions

on which to base the audit opinion

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Sufficient

This is about quantity Must be enough to be representative

Need to consider the risks of material misstatement

and the quality of evidence

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Materiality

An item reported is likely to be relevant by virtue ofits nature and materiality

Information is material if its omission or

misstatement could influence decision-making ofusers

Information can be relevant due to nature,

irrespective of materiality

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Appropriate

This is about quality Quality is about:

Relevance

Reliability

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Relevance

To be useful, info must be relevant to users

Information is relevant when it influences users

economic decisions

Although information in published accounts is

historic, users can use this as a basis for evaluating

future performance and ultimately make investment

decisions

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Reliability

Information is reliable when it is free from material errorand bias and can be considered to be a faithfulrepresentation of the underlying transactions and events

Reliable information will have taken account of the

following: faithful representation

substance over form

neutrality

prudence completeness

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Objective of Financial Statements

Provide information about an entitys financialperformance and financial position that is useful to a

wide range of users for assessing the stewardship of

the entitys management and for making economic

decisions.

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Published financial statements include:

Financial review / management commentary Statement of financial performance

Statement of comprehensive income

Statement of changes in equity

Statement of cash flows

Notes to the accounts

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Financial Statement Assertions

Existence Rights and obligations

Occurrence

Completeness

Valuation

Measurement

Presentation and disclosure

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Procedures for obtaining evidence

Inspection of assets Inspection of documents

Observation

Inquiries

Confirmation

Computations

Analytical procedures

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But in this you need to ensure evidence is..

Sufficient and appropriate: Risk assessment

Nature of accounting and internal control systems

Materiality

Experience from previous audits

Knowledge of the business / industry

Results of audit procedures

Source and reliability of information available

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Audit Documentation

Working papers are used May be on paper, film, electronic media or other

media

Provide the audit evidence to support any

statements in the report Provide evidence that the audit was conducted in

accordance with regulatory requirements

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Other reasons for using working papers

Assist in planning, performance, supervision andreview

May be needed if a negligence claim is made

Because we have to!its a mandatory professional

requirement

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Audit evidence

The information auditors obtain in arriving at theconclusions on which their report is based

There is a need to ensure it is:

Sufficient; and

appropriate