What is audit evidence?
All information used by the auditor to make conclusions on which the audit opinion is based.
Why is audit evidence important?
It supports the audit opinion and provides the basis for conclusions about management’s assertions.
What are the main types of audit procedures used to obtain evidence?
Risk assessment procedures, tests of controls, and substantive procedures.
What is the purpose of tests of controls?
To test the operating effectiveness of internal controls to determine reliance on them.
When are tests of controls performed?
When the auditor intends to rely on the client’s internal control system.
What is the purpose of substantive procedures?
To detect material misstatements in the financial statements.
What are the two types of substantive procedures?
Substantive analytical procedures and tests of detail.
What are examples of audit evidence techniques?
Inspection, observation, enquiry, re-performance, recalculation, and external confirmation.
What is inspection in auditing?
Examining records, documents, or tangible assets to verify accuracy or existence.
What is observation in auditing?
Watching a process or procedure being performed by others.
What is enquiry in auditing?
Seeking information from knowledgeable persons inside or outside the entity.
What is re-performance?
The auditor’s independent execution of procedures or controls originally performed by the entity.
What is recalculation?
Checking mathematical accuracy of documents or records.
What is external confirmation?
Obtaining evidence from a third party to verify account balances or transactions.
What is meant by ‘sufficient’ audit evidence?
It refers to the quantity of evidence obtained, determined by the auditor’s judgment.
What is meant by ‘appropriate’ audit evidence?
It refers to the quality of evidence — its relevance and reliability in supporting conclusions.
What factors influence the sufficiency of audit evidence?
Risk assessment results, materiality, prior experience, and reliability of sources.
What determines the appropriateness of audit evidence?
Its relevance to the assertion being tested and its reliability.
What influences the reliability of audit evidence?
Source (internal vs. external), nature (written vs. verbal), and whether it’s original or a copy.
What is more reliable: external or internal evidence?
External evidence is generally more reliable.
What is more reliable: written or oral evidence?
Written evidence is generally more reliable.
How does risk affect the level of evidence required?
Higher risk requires more reliable and more extensive evidence.
How does materiality affect audit evidence?
More material items require more persuasive audit evidence.
How does cost vs. benefit affect audit evidence?
Auditors must balance the cost of obtaining evidence with the benefit it provides, but cost alone is not a valid reason to omit evidence.
