PERFORMING THE ENGAGEMENT

The Engagement Process (based on the IIA Standard)

Engagement Planning (2200)

Objectives – 2210
Scope – 2220
Resource Allocation – 2230
Audit Program – 2240

Performing the Engagement (2300)

Identifying Information – 2310
Analysis and Evaluation – 2320
Recording – 2330
Supervision – 2340

Communicating Results (2400)

Criteria – 2410
Quality – 2420
Disseminating Results – 2440

Monitoring Progress (2500)

AUDIT EVIDENCE
 -Refers to information gathered in the course of an audit engagement that supports the
auditor’s opinion and conclusions.
-IIA Standard 2310 requires internal auditors to “identify sufficient, reliable, relevant,
and useful information to provide factual basis for audit opinion.”
- Auditors should obtain evidence that is persuasive rather than conclusive.
-Auditors need to obtain evidence on a cost-effective basis.

Attributes of Evidence
1.) Sufficiency – is the measure of the quantity of evidence.
The following should be considered regarding the sufficiency of evidence:
- Risks involved
- The quality of available evidence
- Audit is seeking reasonable, but not absolute, conclusions
- Incomplete data may result in the inability to reach reasonable conclusions
- Extensive examination of evidence may be uneconomical
- Evidence shall be reasonably representative of the population

2.) Reliability – Is the measure of the quality of evidence.

- The reliability of audit evidence is influenced by its source and
by nature
Generalizations on the Reliability of Evidence:
a.) Audit evidence is more reliable when it is obtained from knowledgeable independent
sources outside of the entity.
b.) Audit evidence that is generated internally is more reliable when the related controls
imposed by the entities are effective
c.) Audit evidence obtained directly by the auditor is more reliable than audit evidence
obtained indirectly.
d.) Audit evidence is more reliable when it exists in documentary form, whether paper or
electronic.
e.) Audit evidence provided by original documents is more reliable than audit evidence
provided by photocopies or facsimiles.
 3.) Relevance – Is the measure of the pertinence of the evidence.
- Evidence shall have a logical relationship to what is purports to prove.

Types of Audit Evidence

1.) Physical – consists of evidence that can actually be seen by auditors including
evidence obtained from direct observation and inspection of people, property, and events.
Effective for supporting testing existence and conditions of the asset.
2.) Testimonial – could be from the client or third-party representations. Is provided in
statements of auditee personnel and independent third parties.
3.) Documentary – includes permanent form such as records, purchase order, invoices,
memoranda and procedure manuals. It also involves the client’s accounting records. The
accumulation of source documents and records that allows the organization to trace accounting
entries back to their initiation is known as “audit trail”.
4.) Analytical – stems from analysis, verification, and assessment of data. Evidence
obtained from analytical procedures.
5.) Computations – are performed independently by the auditor to verify mathematical
accuracy of client’s analyses and records.

AUDIT PROCEDURES
- Audit procedures are tools to obtain sufficient, competent, relevant and useful
information or evidence to achieve the audit’s engagement objectives.
 Compliance Oriented Tests – also known as “Test of Controls”. Are designed to
provide reasonable assurance that control procedures are being applied as prescribed.
 Substantive Tests – include the detailed examination of selected transactions. It verifies
whether the information is correct.
 Dual Purpose Test – this refers to tests that serve as both a test of control and a
substantive test.
1.) Interview/ Inquiry – is a frequently used technique to gather evidence. It can help to define
the issues, furnish evidence to support audit findings, and clarify positions between the auditor
and auditee on audit observations.

2.) Inspection – it involves confirming the existence of status of records, documents or physical
assets.
Two Principal Means of Inspection are:
a.) Vouching – refers to the examination of documents that support a recorded
transaction or amount.
b.) Tracing – refers to the examination of documents intended to determine whether or
not a transaction was recorded.

3.) Flowcharting – is the graphic representation of a process or system and provides a means for
analyzing complex operations.
4.) Observation – it is similar to inspection. However, it entails personally verifying or attesting
to a process or procedure.
5.) Confirmation – is a method of obtaining evidence from third parties regarding specific
balances, terms, titles to assets, and pending litigations. It involves a request, usually in writing,
seeking corroboration of information obtained from the auditee’s records. There are two types of

confirmation namely: positive confirmation and negative confirmation.

Types of Financial Statement Assertions

A. Completeness – whether all transactions and accounts that should be presented in the
financial statements or other reports are included.
 B. Rights and Obligations – whether at a given date, assets are rights of the entity and
liabilities are obligations of the entity.
C. Valuation or Allocation – whether the financial statement elements have been
included in the FS at the appropriate amounts.
D. Existence or Occurrence – whether assets/liabilities exist at a given date.
E. Presentation and Disclosure – whether financial statements components have been
properly classified, described, and disclosed.

Evidence for Financial Statement Audit

- Evidence supporting the financial statements consists of (1) underlying accounting data
and (2) all corroborating information available to the auditor. Underlying accounting data
consists of books of the original entry, ledgers, etc. Available corroborating evidence includes
both written and electronic information.
- Audit evidence should be sufficient and appropriate

-End-