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AUDITING & ASSURANCE

Audit Evidence

Group members
Aneel Afzal
Khawar Zaman
Azeem Idrees
Qasim Rashid

Topic:

Audit Evidence

The requirements for


Audit Evidence
Nature of Audit
Evidence
Audit Procedures for
Gathering Evidence.
Documentation of
Evidence

Presentat
ion will
cover:

Audit
Evidence

Audit
Evidence

What is audit evidence?

Evidence gathered in the course of an


audit that supports the auditors
opinion and conclusions.

Audit
Evidence
Types of Audit Evidences

Physical evidence
Third-party representations
Documentary evidence
Computations
Data Interrelationships
Client representations
Accounting records

This type of evidence is


generally efective for
supporting testing
existence and condition of
the asset. Example
inspection of a fxed
asset.

Evidence
that can
actually
be seen
by
auditors.

1. Physical Evidence

2. Third party
representation

Confrmations
Lawyers Letters
Reports of
Specialists

3. Documented Evidence

Created by
outside
parties and
transmitted
directly to
auditor

Created by
outside
parties and
held by
client

Created and
held by
client

Electronic
documents

4.
Computations
Computations are:
Performed independently by
auditor
Used to verify mathematical
accuracy of clients analyses
and records

Efective for testing


reasonableness of
certain account
balances
Can be used as primary or
corroborating evidence,
depending on the nature
of account

Data
interrelationships
(i.e., analytical
procedures) rely on
plausible
relationships among
fnancial and nonfnancial data.

5. Analytical
Procedures

6. Oral or Written
Client Representation
Responses to
questions and
inquiries to clients
during an audit
constitute audit
evidence.
Oral representations
are generally not
sufficient as primary
evidence, but may
provide
corroboration for
other evidence.

Written
representations
(representation
letter) are required,
but should not be
used as a substitute
for other audit
procedures.

7.
Confrmations
The receipt
of a written
or oral
response
from an
independen
t third
party.

Customers
confrm
A/C
receivable
balances

Suppliers
confrm A/C
payable
balances

Banks
confrm
account/loa
n balances

Clients 8. Accounting
accountin
Records
g records
(e.g.
ledgers
and
journals)
may
provide
worthwhil
e
evidence
in

Depends on
the
efectivenes
s of internal
controls

Analytical Procedure
Auditors study relationships among data.
Unusual fluctuations occur when signifcant
diference are not expected but do exist or when
signifcant diferences are expected but do not
exist.
Required during the planning stage.

Analytical Procedure
Analytical Procedures are useful
in identifying among other things:
Diferences that are not
expected.
The absence of diferences when
they are expected.
Potential errors, irregularities or
illegal acts.
Other unusual or non recurring
transactions or events.

Analytical Procedure
If a change in one area
would naturally lead to a
change in some other
area, the absence of the
expected change should
lead to a further study in
search of the cause.
Ex. If commissions paid to
sales representatives rise
in one quarter, it would be
reasonable to expect a
correspondence increase
in sales revenue.

Competence of Audit
Evidence
To be
competent
evidence
must be:
Relevant

Reliable

Sufficient

Useful

Competence of
Evidential Matter

To be competent evidence must be:

Relevant
Must

relate to the audit objective. E.g. purchase


order not relevant to prove that goods were
actually received.

Reliable
Independent

sources have greater reliability


than those within the client organization.
Strong internal control increases reliability of
evidence created within the client organization.
Directly obtained evidence is more reliable than
evidence obtained second hand.

Competence of Audit
Evidence
Evidence is sufficient if there is sufficient
of it to support the auditors fndings. It
must be convincing enough for a
prudent person to reach the same
decision/conclusion. E.g. interviewing
the auditee is not enough to provide
sufficient evidence.

It must be factual and adequate to the


testing objective.

Verifying the physical condition is most


persuasive evidence as to condition of
asset.