CA. Saju Sreedhar.
K, FCA
Preface
Audit evidence forms the bedrock of the auditor’s report
on financial statements. Auditor expresses his opinion of
the financial statements based on evaluation of sufficient
appropriate audit evidence that supports / corroborates
the various assertions by the auditee in respect of
financial statements. Having regard to the importance of
evidence ICAI has issued SA 500 which contains
fundamental concepts relating to audit evidence.
“SA 700 - Forming an Opinion and Reporting on Financial
Statements” lays emphasis on importance of Audit evidence.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in
accordance with the Standards on Auditing issued by the
Institute of Chartered Accountants of India. Those Standards
require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free from material
misstatements. An audit involves performing procedures to
obtain audit evidence about the amounts and the disclosures
in the financial statements....... . We believe that the audit
evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion
In our opinion and to the best of our information and according to
the explanations given to us, the aforesaid financial statements
give the information required by the Act in the manner so required
and give a true and fair view in conformity with the accounting
principles generally accepted in India …………
Report on Other Legal and Regulatory Requirements
2. As required by Section 227(3) of the Act, we report that:
(a) We have obtained all the information and explanations which
to the best of our knowledge and belief were necessary for the
purposes of our audit.
(b) In our opinion, proper books of account as required by law have
been kept by the Company so far as it appears from our examination
of those books.
Scope
Explains what constitutes audit evidence in an audit
of financial statements
Deals with auditor’s responsibility to design and
perform audit procedures to obtain sufficient and
appropriate audit evidence to draw conclusion on the
financial statements
SA is applicable to all audit evidence obtained during
the course of the audit
Effective Date
This SA is effective for audits of financial statements
for periods beginning on or after April 1, 2009.
Objective
Design and perform audit procedures to obtain
sufficient appropriate audit evidence to draw a
reasonable conclusion on which to base the auditor’s
opinion
Requirements of the standard
Sufficient appropriate audit evidence (para.6)
auditor shall perform audit procedures to obtain
sufficient appropriate audit evidence to support
auditor’s opinion and audit report
Audit evidence is cumulative in nature and is
primarily obtained from the audit procedures
performed in course of audit ( Compliance and
substantive)
other sources of audit evidence include firm’s quality
control procedures for client acceptance and
continuance.
Sufficient Appropriate audit evidence is required to
give reasonable assurance to the auditor that the FS
taken as a whole are free from material misstatements
and thereby reduces the audit risk to an acceptable low
levels.
Sufficiency
measure of quantity of audit evidence
effected by auditor’s risk assessment procedures
quality of audit evidence
Appropriateness
is a measure of the quality of audit evidence
emphasis on the relevance and reliability of audit evidence
is influenced by the source of audit evidence.
Sources of audit evidence
Can be broadly classified as internal and external
sources
The level of assurance as to the audit evidence would
depend upon the source and nature of audit evidence.
Procedures for obtaining audit
evidence
Auditor obtains audit evidence through performing
risk assessment procedures
compliance procedures
Substantive procedures
The audit procedures for obtaining audit evidence
comprises of the following
Inspection
examination of records both internal and external, in paper,
electronic or other media and also includes a physical examination
of an asset.
The reliability of audit evidence is dependent upon the nature,
source and effectiveness of controls over their production.
Observation
provides audit evidence wrt performance of a process/ procedure
but is limited to the point in time at which the observation takes
place, and by the fact that the act of being observed may affect how
the process or procedure is performed.
External confirmation
evidence obtained by the auditor as a direct written response
to the auditor by a third party
is relevant for assertions relating to account balances and
their elements
they are not confined to account balances alone and may
extent to other agreements and transactions
Recalculation
Reperformance
Analytical procedures
Inquiry
Seeking information from knowledgeable persons, both
financial and non financial within or outside the entity
evaluating responses to inquiry is an integral part of inquiry
process
Inquiry may provide the auditor with information not
previously known or may provide corroborative evidence.
It may also provide information which contradicts the other
information in pocession of the auditor, in which case the
auditor has to modify or perform additional audit procedures.
Information to be used as audit evidence
Relevance and Reliability (Para 7)
In design and performance of audit procedures, the
relevance and reliability of the information to be used as
audit evidence shall be considered by the auditor
Relevance deals with the logical connection with or
bearing upon the purpose of audit procedure, the
assertions under consideration .
A given set of audit procedures provides audit evidence that are
relevant to certain assertions but not to others. ( inspection of FA
gives audit evidence regarding the existence but do not provide
evidence as to the valuation and ownership)
Compliance procedures are designed to obtain audit evidence with
respect to the existence and operational effectiveness of internal
controls for preventing or detecting and correcting material
misstatements at assertion level.
substantive procedure are designed to detect material
misstatement at the assertion level.
Reliability
reliability of audit evidence is influenced by the source and
nature, circumstances under which it is obtained including
the controls over its preparation and maintenance.
The following generalizations regarding reliability of audit
evidence are to be considered
Reliability is increased if it is obtained from an independent
source
Reliability of internally generated audit evidence increases if the
internal controls over their generation are effective
Audit evidence obtained directly are more reliable in comparison
to one obtained indirectly or by inference.
Audit evidence provided by original documents are more reliable
as compared to photocopies and documents digitized or
converted to electronic form.
Relying on the work of management’s expert
(Para 8)
While relying on the work of management’s
expert the auditor shall:-
Evaluate the competence, capability and objectivity of
the expert
Obtain an understanding of the work of the expert
Evaluate the appropriateness of the expert’s work as
audit evidence for relevant assertions
When using the information produced by the entity,
the auditor shall evaluate whether the information is
sufficiently reliable for auditor’s purposes including
(Para 9)
Obtaining audit evidence regarding accuracy and
completeness of audit evidence
Evaluating whether the information is sufficiently precise
and detailed for auditor’s purposes
Selecting Items for Testing to obtain audit
evidence (Para 10)
An effective testing is designed to provide appropriate
audit evidence sufficient for auditors purposes
In selecting the items for testing the auditor need to
consider relevance, sufficiency and reliability of items
selected
Means available to the auditor for selection of items for
testing are
Selecting all items (100% verification)
Selecting specific items
Audit sampling
Auditor should select any one or combination of these
means as may be appropriate in the circumstances.
100% verification
Auditor may decide to verify the entire population in
the following circumstances
Population consists of small number of high value
items
There is significant risk an other means do not provide
the sufficient appropriate audit evidence
Repetitive nature of the calculation or other processes
performed by the information system make 100%
examination cost effective
Selecting Specific items
The factors to be considered for by the auditor for this
purpose include
understanding the entity, assessed risk of material
misstatement and characteristics of population being
selected
specific items selected include
High Value or Key items
All items over a certain amount
items to obtain information about matters such as the nature of
the entity or nature of the transactions
Selective examination of specific items do not constitute
audit sampling and as such do not provide evidence as to
remainder of the population
Inconsistency in / doubts over reliability of audit
evidence (Para 11)
If audit evidence obtained from one source is
inconsistent with that obtained from another; or
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.
THANK YOU
