Audit Evidence And Audit Testing 2

Audit Evidence: Types, Procedures, and Substantive Testing

Auditors design their audit programmes to ensure – as far as possible – that each of these assertions are true, in order to gain evidence that proves that the financial statements give a true and fair view. As the significance of the specialist’s work and risk of material misstatement increases, the persuasiveness of the evidence the auditor should obtain for those assessments also increases. Once audit evidence is gathered, auditors must evaluate whether it is sufficient and appropriate to support their conclusions. This evaluation involves assessing both the quantity and quality of the evidence. The collection and analysis of audit evidence are critical yet challenging aspects of the auditing process.

Different Types of Substantive Testing

For audits of public companies in the United States, auditors must also assess and report on the effectiveness of the company’s internal controls over financial reporting. This additional reporting requirement is mandated by the Sarbanes-Oxley Act and is essential for ensuring the reliability of financial reporting. Reliable evidence enhances the credibility of financial reporting and supports the assurance process, instilling confidence in stakeholders.

See OAG Annual Audit 7030 for guidance on use of substantive analytical procedures. CSAE 3001.A114 An assurance engagement is an iterative process, and information may come to the practitioner’s attention that differs significantly from that on which the determination of planned procedures was based. As the practitioner performs planned procedures, the evidence obtained may cause the practitioner to perform additional procedures.

Evaluating Relevance and Reliability of Audit Clues

Reviewing the records is essential to ensure that the auditor’s work aligns with the conclusions and that the evidence collected adequately supports the auditor’s findings. Different industries and regulatory bodies often have specific reporting requirements and guidelines that auditors must adhere to. Failure to comply with these guidelines can result in legal and financial consequences. Auditors need to stay up-to-date with the reporting standards relevant to their field and jurisdiction, ensuring that their reports meet the necessary criteria. Auditors must record all pertinent information, including the audit plan, procedures, findings, and any deviations from the plan.

• The evolution of audit evidence in substantive testing is a testament to the dynamic nature of auditing as a discipline.
• Inquiry is used extensively throughout the audit in addition to other audit procedures.
• Auditors usually use audit sampling techniques when performing the audit examination on the client’s financial statements.
• Through a series of case studies, we can see audit evidence in action, demonstrating its pivotal role in substantive testing.
• Getting everyone involved early helps match their expectations with our audit goals.

A. Inspection of Documentation

• This is the crux of an auditor’s responsibility to the public and the capital markets they serve.
• These techniques involve selecting appropriate sources, performing rigorous procedures, and applying professional judgment and skepticism.
• For example, we may ask the client’s personnel for an explanation about inventory counting procedures at year-end.
• Furthermore, audit evidence is a vital part of any audit as it allows auditors to reach conclusions and form an opinion.
• The financial statement assertions are those assertions that are implicit or implied when the directors make an explicit statement that the financial statements give a true and fair view.
• This type of audit procedures provides evidence that the client’s procedures actually take place at the time the auditors perform the observation.

The key types of audit evidence are documentation, records, and corroborating information. Audit procedures aim to obtain sufficient and appropriate evidence to evaluate financial statement assertions regarding existence, completeness, rights/obligations, occurrence, and valuation. Methods of evidence accumulation include inspection, observation, external confirmation, recalculation, and analytical procedures.

Types of Audit Procedures and Examples

In this case, we will need to increase our substantive tests in order to reduce the audit risk to an acceptable level. Analytical procedures include performing various analyses on the financial statements of the client to identify any trends or discrepancies. Similarly, analytical procedures can help obtain an overall view of the changes in the financial year. Auditors use various techniques to ensure the audit evidence they gather is of high quality. These techniques involve selecting appropriate sources, performing rigorous procedures, and applying professional judgment and skepticism.

(ii) Substantive procedures, including tests of details and substantive analytical procedures. The second significant stage of the audit process focuses on reviewing internal controls. This phase helps determine the reliability of an organization’s financial information and its compliance with applicable laws and regulations.

B. Performing Rigorous Audit Procedures

Auditors should cross-reference their findings to the audit Audit Evidence And Audit Testing objectives, assertions, and relevant standards. This practice helps auditors and stakeholders trace the evidence back to its source and purpose. Standardized documentation formats and procedures should be followed to ensure uniformity across audits. For example, we perform the test of controls for sales by testing various assertions such as occurrence, completeness, and cut-off.

D. Document Procedures and Results Thoroughly

Substantive testing involves scrutinizing transactions, account balances, and supporting documents. Techniques such as third-party confirmations, physical inspections, and analytical reviews help confirm that financial statements are precise and free of major errors. The primary aim of substantive testing is to verify the accuracy and completeness of financial information. Through detailed analyses, auditors gather evidence to ensure the fairness and reliability of financial reports, boosting stakeholder confidence.

The International Standards on Auditing (ISA) 500, “Audit Evidence,” provides guidance on how auditors should evaluate the reliability and appropriateness of such information before using it as audit evidence. This article explores the nature of IPE, how auditors assess its reliability, and the role it plays in forming audit conclusions. Through the performance of such audit procedures, the auditor may determine that the accounting records are internally consistent and agree to the financial statements. Audit procedures are the methods that auditors use for obtaining audit evidence to form a basis for their opinion on financial statements.

Risk assessment procedures should be starting from inquiries of management regarding the financial reporting procedures and perform analytical procedures to identify possible misstatements and unusual transactions. In the intricate process of an audit, the evaluation of relevance and reliability of audit clues is paramount. These clues, or pieces of evidence, are the building blocks upon which auditors construct their understanding of the financial statements under review. The relevance of an audit clue pertains to its connection with the audit objective; it must directly relate to the assertion being tested. Reliability, on the other hand, refers to the quality of the evidence, its source, and its form, which collectively influence the auditor’s confidence in the clue’s truthfulness.