# AUDIT EVIDENCE DECISION: A major decision facing every auditor is determining the appropriate types and amount of evidence

to accumulate to be satisfied that the components of the clients financial statements and the overall statements are fairly stated. Here describe those following steps: 1)Audit Procedures: An audit procedure is the detailed instruction for the collection of a type of audit evidence that is to be obtained at some time during the audit. In designing audit procedures it is common to spell them, out in sufficiently specific terms to permit their use as instructions during the audit. 2) Sample Size: Once an audit procedure is selected, it is possible to vary the sample size from one to all the items in the population being tested. The sample size for any given procedure is likely to vary from audit to audit. 3) Items to select: After the sample size has been determined for an audit procedure, it is still necessary to decide which item in the population to test. 4) Timing: An audit of financial statements usually covers a period such as a year and an audit is usually not completed until several weeks or months after the end of the period. The timing of the audit procedures can therefore vary from early in the accounting period to long after it has ended. 5)Audit Program: The list of audit procedures for an audit area or an entire audit is called an audit program. The audit program always includes a list of the audit procedure. It usually also includes sample sizes, items to select and the timing of the test.
#Analytical Procedures: Evaluations of financial information made by a study

of plausible relationship among financial and no financial data involving comparisons of recorded amounts to expectations developed buy the auditor . Analytical procedures use comparisons and relationships to assess whether account balances or other data appear reasonable. Analytical procedures are also used to isolate accounts or transactions that should be investigated more extensively to help in deciding whether additional verification is needed. 1. Understand the clients industry and business: An auditor considers knowledge and experience about a client company obtained in prior years as a starting point for planning the audit for current year. By conduction analytical procedures in which the current years unadjusted information is compares with prior years audited information, changes are highlighted. 2. Assessment of the entities ability to continue as a going concern: Analytical procedures are often useful as an indication that the client campanula is encountering severe financial difficulty. The likelihood of financial failure must be considered by the auditor in the assessment of audit related risk as well as in connection with management use of the going concern assumption in preparing the financial statements.

3. Indication Of the Presence of possible misstatements in the financial statements: Significant unexpected differences between the current years unedited financial data and other data used in comparisons are commonly called unusual fluctuations. Unusual fluctuations occur when significant differences are not expected but do exist or when significant differences are expected but do not exist. 4. Reduction of detailed audit tests: When an analytical procedure reveals no unusual fluctuations, the implication is that the possibility of a material misstatement is minimized. In that case, the analytical procedure constitutes substantive evidence in support of the fair statement of the related account balances and its possible to perform fewer detailed tests in connection with those account. 5. Timing: Analytical procedures may be performed at any of three times during an engagement. Some analytical procedures are required to be performed in the planning phase to assist in determining the nature, extent and timing of work to be performed. Type of analytical procedures: the usefulness of analytical procedures as audit evidence depends significantly on the auditor developing an expectation of what a recorded account balance or ration based on account balances should be regardless of the type of analytical procedures used. The auditor typically compares the clients balances and rations with expected balances and rations using on or more of the following types of analytical procedures: 1. Compare client and industry data: The most important benefits of industry comparisons are as an aid to understanding the clients business and as an indication of the likelihood of financial failure. Any primarily of a type that bankers and other credit executives use in evaluation whether a company will be able to repay a loan. That same information is useful to auditors in assessing the relative strength of the clients capital structure, its borrowing capacity and the likelihood of financial failure.
2. Compare client data with similar prior period data: This decline in a gross margin should be a concern to the auditor. If there is no expectation decline. The cause of the decline could be a change in economic conditions. How ever it could also be cause by misstatement in the financial investment such as sells or purchases cut off errors, unrecorded sells, over stated account payable or inventory costing errors . 3. Compare client data with client determined expected results : Most companies prepare budgets for various aspects of their operations and financial results. Because budgets represent he client expectations for the period, an investigations the most significant areas in which differences exist between budgets and actual result may indicate potential misstatements. The absence of differences may also indicate that misstatements are unlikely. 4. Compare client data with auditor determined expected results : A second common type of comparison of client data with expected results occurs when the auditor calculate the expected balance for comparison with the actual balance. In this type of analytical

procedure, the auditor makes an estimate of what an account balance shou8ld be buy relating it to some other balance sheet or income statement account or accounts or by making a projection based on some historical trend. 5. Compare client data expected results using non financial data: Using those data, it is relatively easy to estimate total revenue from rooms to compare with recorded revenue. The same approach can sometimes be used to estimate such accounts as tuition revenue at universities, factory payroll and cost of materials sold. The major concern in using no financial data is the accuracy of the data. In the previous illustration it is not appropriate to use an estimated calculation of hotel revenue as audit evidence unless the audit is satisfied with reasonableness of the count of the number of rooms, room rate occupancy rate.