Audit Evidence & Financial Statement Assertions

Key ISAs
ISA 200 Overall Objectives of the Independent Auditor and the Conduct of an Audit Accordance with Internal Standards Auditing Audit Evidence Identifying and assessing risks of material misstatement through understanding the entity and its environment The auditors responses to assessed risk Analytical procedures Going concern

in on ISA 500 ISA 315

ISA 330 ISA 520 ISA 570

Why is audit evidence important?

Auditors should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion

But what is it?

Audit evidence is the information used to get to the conclusion 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)

So we have some key words

Auditors should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion

Sufficient

This is about quantity Must be enough to be representative Need to consider the risks of material misstatement and the quality of evidence

Materiality

An item reported is likely to be relevant by virtue of its nature and materiality Information is material if its omission or misstatement could influence decision-making of users Information can be relevant due to nature, irrespective of materiality

Appropriate

This is about quality Quality is about:

Relevance Reliability

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

Reliability

Information is reliable when it is free from material error and bias and can be considered to be a faithful representation of the underlying transactions and events Reliable information will have taken account of the following: faithful representation substance over form neutrality prudence completeness

Objective of Financial Statements

Provide information about an entitys financial performance 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.

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

Financial Statement Assertions

Existence Rights and obligations Occurrence Completeness Valuation Measurement Presentation and disclosure

Procedures for obtaining evidence

Inspection of assets Inspection of documents Observation Inquiries Confirmation Computations Analytical procedures

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

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

Other reasons for using working papers

Assist in planning, performance, supervision and review May be needed if a negligence claim is made Because we have to! its a mandatory professional requirement

Audit evidence

The information auditors obtain in arriving at the conclusions on which their report is based There is a need to ensure it is:

Sufficient; and appropriate