SA – 500 Audit Evidence (Revised)

SA – 500 Audit Evidence (Revised) W.E.F. April 1, 2009

Definitions

1. Accounting records – The records of initial accounting entries and supporting records, such as check and records of electronic funds transfers; invoices; contracts; etc.
2. Appropriateness(of audit evidence) – The measure of the quality of audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based.
3. Audit evidence – Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is base. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information.
4. Management’s expert – An individual organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements.
5. Sufficiency (of audit evidence) – The measure of the quantity of audit evidence. The quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of material misstatement and also by the quality of such audit evidence.

SufficientAppropriate AuditEvidence

The auditor shall design and audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence.

1. Inspections:

• Inspection consists of examining records, documents or tangible assets. Inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media.
• An example of inspection used as a test of controls is inspections of records for evidence of authorization.
• Inspections of tangible assets may provide reliable audit evidence with respect to their existence, by not necessarily about the entity’s rights ad obligations or the valuation of the assets.

2. Observation:

• Observation consists of witnessing a process or procedure being performed by others.
• For example, the auditor may observe the counting of inventories being performed by client’s personnel.

3. Inquiry & Confirmation:

   1. Inquiry consists of seeking appropriate information from knowledgeable persons inside or outside the entity.

   2. Confirmation consists of the response to an inquiry.

   3. For example, the auditor requests confirmation of receivables by direct communications with debtors.

4. Recalculation:

Recalculation consists of checking the mathematical accuracy of documents or records Recalculation may be performed manually or electronically.

5. Analytical Procedures:

Analytical involves the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control.

6. Re performance:

Re performance involves the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control.

Information To Be Used As Audit Evidence

1. When Designing and performing audit procedures, the auditor shall consider the relevance and reliability of the information to be used and audit evidence.

• The reliability of audit evidence is increased when it is obtained from independent source outside the entity.
• The reliability of audit evidence that is generated internally is increased when the related controls are effective.
• Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly
• Audit evidence in documentary form, whether paper. electronic, or other medium, is more reliable than evidence obtained orally
• Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles, or documents that have been filmed, digitized or otherwise transformed into electronic form, the reliability of which may depend on the controls over their preparation and maintenance.

2. When information to be used as audit evidence has been prepared using the work of a management’s expert, the auditor shall,

a) Evaluate the competence, capabilities and objectivity of that expert;

b) Obtain an understanding of the work of that expert; and

c) Evaluate the appropriateness of that experts work as audit evidence for the relevant assertion.

3. When using information produced by the entity, the auditor shall evaluate whether the information is sufficiently reliable for the auditor’s purposes.

Inconsistency In, Or Doubts Over Reliability Of, Audit Evidence

If, a) Audit evidence obtained from one source is inconsistent with that obtained from another; or

b) The auditor has doubts over the reliability of information to be used as audit evidence. The auditor shall determine what modifications or additions to audit procedures are necessary to resolve the matter, and shall consider the effect of the matter, if any, on other aspects of the audit.