Isa 500

ISA-500
AUDIT EVIDENCE
INTERDOUCATION
The Auditor should obtain sufficient appropriate audit evidence to be
able to draw reasonable conclusions on which to base the audit opinion.
CONCEPT OF AUDIT EVIDENCE

Audit evidence is all information used by the auditor in arriving at the
conclusions on which his opinion is based and includes the information
contained in the accounting record, underlying the financial statement and
other information. It is obtained from audit procedure performed during the
course of audit and includes audit evidence obtained from other sources e.g.
pervious audit.
Accounting record generally include the record of initial entries and

supporting records, such as Cheques and records of electronic fund transfers;
invoices; contracts and general and subsidiary ledgers, journal entries and
other adjustment to the financial statements that are not reflected in formal
records e.g. cost allocations sheets, computations, reconciliations and
discolors. The entries in the electronic form in addition to the accounting
record may be part of integrated system that share data and support all
aspects of the entity’s financial reporting operation and compliance
objective.
Auditor obtain most of the audit evidence from accounting records of the
entity, if accounting records do not provide sufficient audit evidence
(because accounting records are internally generated) the auditor obtain
other audit evidence.
Other information that the auditor may use as audit evidence includes
minutes of meetings, confirmations from third parties, analysis reports,
comparable data about competitors , information obtained by the auditor
from such audit procedures as inquiry, observations and inspection and other
information developed by or available to the auditor that permits auditor that
permits auditor to reach conclusions through valid reasoning.
SUFFICIENT APPROPRIATE AUDIT EVIDENCE
Sufficient;
The measure of quantity of audit evidence.
Appropriate;
The measure of quality i.e. relevance and reliability in providing support for
detecting misstatements in account balance, classes of transactions and
disclosures and relevant assertions.
The quantity of audit evidence needed is affected by
 The risk of misstatement ( the grater the risk, the more audit evidence is
likely to be required and;
 The quality of such audit evidence ( the higher the quality, the less may
be required)
Accordingly sufficiency and appropriateness of audit evidence are

interrelated. However, merely obtaining more audit evidence may not be
compensating for its poor quality.
Audit evidence obtained through same audit procedure may be relevant to

certain assertions but not relevant to other assertions e.g. inspection of
records regarding collection of receivables after period end may provide
audit evidence regarding its existence and valuation however it does not
provide audit evidence regarding completeness.
The auditor often obtain evidence about assertion from different sources of
different nature e.g. auditor may analyze the aging of account receivable
and subsequent collection of receivable to obtain audit evidence regarding
valuation of allowance for Doubtful Debts.
Evidence about an assertion not a substitute for evidence regarding another

assertion e.g. physical inventory count (existence) & valuation of inventory
(Valuation)
Sources of Obtaining Audit Evidence
The audit evidence can be obtain from the following sources
o Internal source
Through accounting system, management, employee underlying
documentations etc.
o External Source
Third parties, i.e. suppliers, customers, bankers, legal advisors and other
parties who have knowledge of the enterprise.
Reliability of Audit Evidence
Following generalizations are consider useful in assessing reliability of

evidence;
 Audit evidence obtain from independent sources outside the entity is

more reliable.
 Audit evidence generated internally is more reliable when related
controls are effective.
 Audit evidence obtained by an auditor directly is more reliable than that
obtained indirectly or by interference e.g. Bank balance confirmation
certificate received by an auditor is more reliable than the bank statement
obtained from the management.
 Written evidence is more reliable than oral representation.
 Audit evidence provided by original documents id more reliable than
provided by photocopies and facsimiles.
Other Factors Relating To Audit Evidence
When information produced by the entity is used by the auditor t perform

audit procedures, the auditor should obtain audit evidence about the
accuracy and completeness of the information
Auditor’s reliance increase when audit evidence obtained from one source
is consistent with another source; if it is inconsistent further procedures
may be performed.
Cost of obtaining the audit evidence is also considered when obtaining it.
While forming an audit opinion, the auditor does not have to examine all
the items or obtain all the evidence which might be available. He can reach
to a conclusion by examining a sample of such transactions. He also relies
on persuasive evidences However, if evidence is less than persuasive, he
should not consider it reliable.
THE USE OF ASSERTIONS IN OBTAINING AUDIT EVIDENCE
The auditor should use assertions for classes of transactions, account

balance, and presentation and disclosures in sufficient detail to from a
basis for the assessment of risks of material misstatement and
performance of further audit procedure.
Assertions about classes of transactions and event of the period under

audit;
 Occurrence-Transactions and events that have been recorded have

occurred and pertain to the entity.
 Completeness-All transactions and events that should have been recorded
have been recorded.
 Accuracy- Amounts and other data relating to recorded transactions and
events have been recorded appropriately.
 Cutoff- Transactions and events have been recorded in the correct
accounting period.
 Classification- Transactions and events have been recorded in proper
accounts.
Assertions about account balances at the period end.
 Existence- Assets, liabilities and equity interests exit.

 Right and Obligations- The entity holds or controls the right of assets,
and liabilities are the obligations of the entity.
 Completeness- All assets, liabilities and equity interests that should have
been recorded have been recorded.
 Valuation and allocation- Assets, liabilities and equity interest are
included in the financial statement at appropriate amounts and any
resulting valuation or allocations adjustments are appropriately recorded.
Assertions about Presentation and Disclosure
Occurrence and rights and obligations- Disclosed events, transaction and

other matters have ordered and pertain to the entity.
Completeness- All disclosures that should have been included in the
financial statement have been included.
Classification and Understandability- Financial information is
appropriately presented and described, and disclosures and clearly
expressed.
Accuracy and valuation- Financial and other information are disclosed
fairly and at appropriate amounts.
AUDIT PROCEDURESS FOR OBTAINING AUDIT EVIDENCE
Auditor performs audit procedures to obtain an understanding of the entity,

its environment and assess risks of material misstatement. Procedures are
also applied to test operating effectiveness of internal controls and for
detection of material misstatements at assertion level.
The auditor always performs risk assessment procedure to provide a

satisfactory basis for assessment of risk at financial statement level. In
addition to these risk assessment producers, which alone are not sufficient,
the auditor performs audit producers in the from of test of control and
substantive procedures.
Test of controls are applied when auditor expected to rely on operating

control through test of controls; he test the controls to support the risk
assessment. These are also applied when substantive procedures alone do not
provide sufficient appropriate audit evidence.
Nature and timing of audit producer may be affected by the entity’s data
retention policies or their practices to convert source documents id not
computer images through scanning, meaning of communication being used
by the entity e.g. electronic messaging rather than written purchase orders.
The auditor uses one or more types of audit procedures described below.
Inspection of records or Documents
It consists of examining records or documents whether internal or external,

in paper from electronic from, or other media, inspection provides evidence
of varying degrees of reliability depending on their nature and source and in
the case of internal records, on effectiveness of controls over their
production.
Inspection of Tangible Assets
It consists of physical examination of the assets. It may provide reliable

audit evidence of their existence but not necessarily about other assertions.
Inquiry
It means seeking information form knowledge persons throughout the entity

or outside the entity. Those may be formal written or information oral,
provides an auditor with new information or corroborative evidence. Certain
oral inquiries might be got confirmed through written representations.
Confirmations
It is a specific type of inquiry. It is the process of obtaining a representation

of information or an exciting condition directly from a third party.
Confirmations are sought from debtors, creditors, bankers, legal advisor etc.
Recalculation
It consists of checking the mathematical accuracy of documents or records,

it can be performed through use of information technology.
Reperformance
It is the auditor’s independent execution of procedures or controls that were

originally performed as part of the entity’s internal control, either manually
or through the use of CAATs e.g. reperforming ht aging of account
receivable.
Analytical Procedures
It consists of evaluations of financial information made by a study of
relationship among both financial and non Financial data. It includes
investigation of significant fluctuations found and the relationship that are
inconsistent.

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ISA-500

CONCEPT OF AUDIT EVIDENCE

Accounting record generally include the record of initial entries and

The quantity of audit evidence needed is affected by

Accordingly sufficiency and appropriateness of audit evidence are

Audit evidence obtained through same audit procedure may be relevant to

Evidence about an assertion not a substitute for evidence regarding another

The audit evidence can be obtain from the following sources

Reliability of Audit Evidence

Following generalizations are consider useful in assessing reliability of

 Audit evidence obtain from independent sources outside the entity is

Other Factors Relating To Audit Evidence

When information produced by the entity is used by the auditor t perform

THE USE OF ASSERTIONS IN OBTAINING AUDIT EVIDENCE

The auditor should use assertions for classes of transactions, account

Assertions about classes of transactions and event of the period under

 Occurrence-Transactions and events that have been recorded have

Assertions about account balances at the period end.

 Existence- Assets, liabilities and equity interests exit.

Assertions about Presentation and Disclosure

Occurrence and rights and obligations- Disclosed events, transaction and

AUDIT PROCEDURESS FOR OBTAINING AUDIT EVIDENCE

Auditor performs audit procedures to obtain an understanding of the entity,

The auditor always performs risk assessment procedure to provide a

Test of controls are applied when auditor expected to rely on operating

It consists of examining records or documents whether internal or external,

Inspection of Tangible Assets

It consists of physical examination of the assets. It may provide reliable

It means seeking information form knowledge persons throughout the entity

It is a specific type of inquiry. It is the process of obtaining a representation

It consists of checking the mathematical accuracy of documents or records,

It is the auditor’s independent execution of procedures or controls that were

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