Chapter 13

Audit
Evidence
PSA 500 (Redrafted), “Audit Evidence”

explains what constitutes audit evidence in an audit of FS,

and deals with auditor’s responsibility to design and
perform audit procedures to obtain sufficient appropriate
audit evidence to be able to draw conclusions on which
to base the auditor’s opinion.

Audit evidence is all the information used by the auditor in

arriving at the conclusions on which the audit opinion is
based, and includes both information contained in the
accounting records underlying the FS and other
information.
 Sufficient Appropriate Evidence
Sufficiency is the measure of the quantity of audit evidence.
Appropriateness is the measure of the quality of audit evidence and its
relevance and to a particular assertion and its reliability.

FACTORS INFLUENCING THE AUDITOR’S JUDGMENT AS TO WHAT IS

SUFFICIENT AND APPROPRIATE AUDIT EVIDENCE

Auditor’s assessment of the nature and level of inherent risk at both the FS level and the
account balance or class of transactions level.

Nature of the accounting and internal control systems and the assessment of control risk.

Materiality of the item being examined.

Experience gained during previous audits.

Results of audit procedures, including fraud or error which may have been found.

Source and reliability of information available.

 The ff. summarizes the most commonly used audit procedures to
gather audit evidence and examples of their application:
Audit Procedure Definition Examples of Application
1. Analyze to identify and classify items for Account transaction
further study
2. Compare to observe similarities and Beginning balances with last
differences between related items year’s audit figure
3. Confirm to communicate with outside Accounts receivable; cash in
parties to authenticate internal bank; accounts payable
evidence
4. Count to enumerate a characteristic Cash; inventory
5. Examine to review critically Authoritative document such as
invoices, checks
6. Extend to multiply Inventory quantity
7. Foot to add a column Total cash received column
8. Inspect to scrutinize or critically examine a Certificate of stock
document
9. Interrelate to show relationship Interest expense with liabilities
 Audit Procedure Definition Examples of Application
10. Observe to watch or test a client Inventory count
11. Reconcile to establish agreement between Cash balance per ledger with
separate sources of information cash balance per bank
statement
12. Test to sample Cash transaction
13. Trace to follow a transaction through the Bookkeeping procedures
steps of the system
14. Verify to provide accuracy of numbers or Rent income against lease
existence of amount contract
15. Vouch to prove accuracy of accounting Cash disbursement
entries by tracing to supporting
documents

PSA 580 (Revised and Redrafted), “Written Representations” provides that

audit evidence is all the information used by the auditor in arriving at the
conclusions on which the audit opinion is based. Written representations
are necessary information that the auditor requires in connection with the
audit of the entity’s financial statements.