AUDITING AND ASSURANCE SERVICES IN MALAYSIA

TOPIC 5: AUDIT EVIDENCE & AUDITING PROCEDURE

References: Chapter 5AUD390 2014AUDITING AND ASSURANCE SERVICES IN MALAYSIA

LEARNING OUTCOMESAUD390 2014TYPES OF AUDIT EVIDENCE QUALITY AND ADEQUACY OF AUDIT EVIDENCE TYPES OF AUDIT PROCEDURES/TESTSTEST OF CONTROLSSUBSTANTIVE TESTTESTS OF DETAILSANALYTICAL PROCEDURES

NATURE OF AUDIT EVIDENCE AUD390 2014Definition: all of the information used by the auditor in arriving at the conclusions on which the auditors opinion is basedBeing obtained from the audit procedures performed during the audit fieldwork, and also include evidence obtained from other sources such as from previous auditDefinition Audit Procedures: the actions that an auditor takes in acquiring evidence

The Relationship Of Evidential Matter To The Audit Report AUD390 2014Financial StatementsManagementAssertionsAudit ObjectivesAuditProgramsAudit EvidenceAudit Reports

CHARACTERISTICS DETERMINE PERSUASIVENESS OF AUDIT EVIDENCEAUD390 2014ISA 500 Audit Evidence requires the auditor to accumulate sufficient appropriate evidence to support the opinion issuedDeterminants of the persuasiveness of evidence areAppropriateness or ReliabilitySufficiency

Appropriateness or ReliabilityAUD390 2014Def the degree to which evidence can be considered reliable or worthy of trustE.g. if an auditor counted the inventory, the evidence will be more appropriate if the auditor counted the inventory rather than the management give the figure7 characteristics of appropriate or reliable evidence:-1. Relevance2. Independence of provider7. Timeliness3. Effectiveness of clients internal control5. Qualifications of individuals providing the information 6. Degree of objectivity4. Auditors direct knowledge

Reliability Of Audit EvidenceEvidence from sources outside an entity is more reliable than evidence obtained solely from within the entity.Evidence generated internally is more reliable when the internal control structures are effective.Evidence obtained directly by the auditor is more reliable than evidence obtained from the client.Evidence in the form of documents or written representations is more reliable than oral representations.Evidence provided by original documents is more reliable than evidence provided by photocopies or facsimiles

AUD390 2014

SufficiencyAUD390 2014Def Measured primarily by the sample size the auditor select2 factors determine the appropriate sample size:-Auditors expectation of misstatementsEffectiveness of the clients internal controls

TYPES OF AUDIT EVIDENCEAUD390 2014Physical examination/ InspectionObservationExternal ConfirmationDocumentation Re-performance Analytical proceduresInquiriy

Physical ExaminationAUD390 2014Def the inspection or count by the auditor of a tangible assetObjective:Verifying that an asset actually exist (existence obj.)Ascertaining both the quantity & the description of the assetEvaluating an assets condition or quality

ConfirmationAUD390 2014Def the receipt of a written or oral response from an independent third party verifying the accuracy of information that was requested by the auditorISA 501identifies 2 common types of confirmation requests i.e. positive confirmation & negative confirmationPositive confirmationAsk the recipient to respond in all circumstancesNegative confirmationThe recipient is asked to respond only when the information is incorrectIMPORTANT: Process of getting confirmation must be controlled by the auditor from the time they are prepared until they are returned; to maintain the reliability of the evidence

DocumentationAUD390 2014Def the auditors examination of the clients documents & records to substantiate the information that is or should be included in the financial statementsAdvantage:Widely usedReadily available at a relatively low costClassified into 2; Internal & External

Con.. AUD390 2014Internal DocumentsDocs. that has been prepared & used within the clients organisation & retained without ever going to an outside partyE.g. duplicate sales invoice, employees time reports & inventory receiving reportExternal DocumentsDocs. that has been in the hands of someone outside the clients organisation; who is party to the transaction, but which is either currently in the hands of the client or readily accessibleIn some cases, docs originate outside the clients organisation & ended up in the hand of client

ConAUD390 2014E.g. vendors invoices, cancelled note payable, insurance policies, cancelled cheque (returned by supplier/vendor)Vouching the process in which the auditor use documentation to support recorded transactions or amountsE.g. to vouch recorded acquisition transactions, the auditor trace transaction from acquisition journal to support vendors invoices & receiving reports

Analytical ProceduresAUD390 2014ISA 520 Analytical procedures use comparisons & relationships to assess whether account balances or other data appear reasonableIt is being used for different purposes on an auditUnderstand the clients industry & businessAssess the entitys ability to continue as a going concernIndicate the presence of possible misstatements in the financial statementsReduce detailed audit tests

Inquiries of the ClientAUD390 2014Def the obtaining of written or oral information from the client in response to questions from the auditorDisadvantage:It is not from an independent source & may be biased in the clients favorWhen the auditor choose to obtain evidence through inquiries, it is normally necessary to obtain further corroborating evidence through other method

Re-performanceAUD390 2014Def Involves rechecking a sample of the computations and transfers of information made by the client during the period under auditAlso known as testing the clients arithmetical accuracy

ObservationAUD390 2014Def the use of the sense to assess certain activitiesOpportunities to exercise sight, hearing, touch & smell to evaluate a wide range of items

Tutorial QuestionsAUD390 2014List 3 sources of audit evidence with an example of each of the source.List the 4 determinants for the persuasiveness of the audit evidence and give a brief explanation for each.Classify the following evidences as either internal or external documentsPurchase requisitionOriginal copy of Delivery NoteCheque buttPayment vouchersWhat is a standardized audit program?Explain 3 advantages and disadvantages of standardized audit program?