This evidence is collected wherever possible based on the nature of the audit. CPCON adheres to strict confidentiality protocols, ensuring that all audit evidence is securely stored and only accessible to authorized personnel. Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. Join us in celebrating the joy of learning, guided by standards you can trust.

Re-performance and Expert Opinion Evidence

If observation is used as Audit Evidence to draw a conclusion, it is advisable to corroborate it with another form of Audit Evidence such as documentary evidence to increase its reliability. Subsequently, the auditor can utilize this to consider the implication of those identified control risks on the audit. The auditor can reperform, for example, the entity’s procure-to-pay process from placing a purchase order to obtaining the necessary approval and finally issuing the payment. Internal controls are safeguards that organizations put in place to protect themselves from various risks. These risks can be related to finances, day-to-day operations, or long-term strategies.

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Reperformance is commonly applied by the auditor when testing the client’s internal controls. Firstly, it serves as a tool for quality control by documenting the planning, execution, and supervision of the audit engagement, thereby ensuring compliance with auditing standards and requirements. In addition, it facilitates the review of the audit work by providing a comprehensive record of the procedures performed, which can serve as a foundation for future audits.

• These include physical examination of assets, documentation reviews, observations of processes, and direct inquiries.
• Additionally, navigating increasingly complex business environments and global markets presents challenges in understanding and assessing risks.
• Since these external parties are independent of the entity, they will not have an issue being objective in their responses to the auditor.
• The systematic process of collecting evidence ensures the information gathered is reliable and sufficient to support audit conclusions.

The diverse types of evidence collected provide a comprehensive view of an entity’s financial health and compliance status. Receiving the written response directly from the third party is required to verify the accuracy and authenticity of various information needed by the auditor. In the above case, the auditor asks for the written confirmation of the balances from the customers as selected by them to ensure that the balances reflected in the financial statements are correct.

This assertion concerning the accuracy of the information disclosed in or noted to the financial statements. If the information is not strong or low quality, the audit risks of making incorrect audit opinions are high. Auditors evaluate the reliability of evidence to ensure that they base the conclusions on credible and dependable information. Audit evidence can be categorized into several types, each offering unique insights and levels of reliability.

One most common examples of analytical procedures is checking the three-way relationships between revenue, receivable, and cash. An external confirmation is a written response obtained directly by the auditor from a third party. Auditors often grapple with vast troves of data in their quest for the quintessential proof, akin to finding a needle in a haystack. Moreover, the burden rests on them to ensure no critical elements are omitted. Just like oral evidence, this form of Audit Evidence may not be the best as it is internally generated.

Risk Assessment and Audit Procedures

• CPCON offers guidance on risk assessment methodologies and encourages auditors to stay abreast of industry trends and developments.
• Businesses should ensure they have accurate and complete financial records, maintain documentation of transactions and agreements, establish robust internal controls, and cooperate fully with auditors.
• Through the accounting system, the auditor can obtain all relevant information relating to the financial statements.
• Auditors may need to corroborate documentary evidence with oral explanations, observations, or confirmations from third parties to ensure its accuracy and completeness.

Upon making a payment based on an invoice from a supplier, the client will have a payment voucher as a record and also a bank statement to trace the cash outflow. Auditors will then review or sight these documents to gather the information they need. Since these external parties are independent of the entity, they will not have an issue being objective in their responses to the auditor. Physical examination is generally the key Audit Evidence for property, plant and equipment and is also commonly a part of the inventory count at the entity’s warehouse.

Observation is different from a physical examination as it focuses on processes rather than physical assets. The accounting system of the client is also a source of audit evidence for auditors. Through the accounting system of the client, auditors can obtain all the information related to the financial statements. If the client uses a computerized accounting system, auditors can also use electronic procedures for obtaining audit evidence. Audit evidence consists of accounting records related to the financial statements and other information that auditors gather. These may contain documents such as circularization that they obtain from third parties or the client.

Emerging trends in collecting and processing audit evidence

The major reason an independent auditor gathers audit evidence is to support their conclusions related to financial statement items. For auditors’ work to be trustworthy, they must use proper procedures and techniques to evaluate the truthfulness and fairness of the financial statements. Therefore, they gather evidence to support these procedures and their opinion. It is considered sufficient when the auditors determine the quantity of the audit evidence enough on which they base their opinion. Therefore, sufficiency relates to the quantity of the audit evidence, rather than its quality. The appropriateness of audit evidence represents the relevance and reliability of audit evidence in providing support for the conclusions on which auditors base their opinion.

Auditors should design and perform substantive procedures to be responsive to the level of detection risk taking the consideration of the results of tests of controls, if any. Auditors should always consider the relevance and reliability of any information that they use as evidence while performing their audit work. Leveraging advanced audit management tools like VComply can help address these challenges by providing a robust framework for efficient and effective auditing in the modern landscape. Now, let’s explore the latest trends and challenges auditors face in today’s fast-evolving business landscape. Next, let’s move from numbers and analysis to what auditors can observe directly in organizations.

Gathering and objectively evaluating audit evidence requires the auditor to consider two factors, sufficiency, and appropriateness. Physical examination and documentation offer tangible evidence of transactions and assets, while observations provide firsthand insight into operations and controls. Inquiries and interviews facilitate direct communication with key personnel, confirming information and identifying potential risks.

Audit Procedures to Obtain Audit Evidence

CPCON offers guidance on risk assessment methodologies and encourages auditors to stay abreast of industry trends and developments. Moreover, ensuring independence and objectivity in audits amidst growing pressure from clients and stakeholders is a perpetual challenge. Collecting different types of audit evidence comes with challenges, especially in complex financial environments. At CPCON, we tackle these challenges by setting high standards and providing continuous training to our auditors. These confirmations provide independent verification of the accuracy and validity of financial information, thereby reducing the risk of misstatement or fraud. They help auditors obtain reliable and objective evidence that supports the completeness and accuracy of reported balances and transactions.

The examples for reperformance include reperforming bank or account receivables/payables reconciliations to evaluate the internal controls in place at the client. Through reperformance, auditors can also determine the control risk of a client. Documentation requires auditors to gather documents regarding different aspects of an audit, which may be internal or external. Auditors can use various techniques such as vouching or tracing with documentation as a part of their audit procedures.

By conducting these verifications, auditors can ensure the accuracy of recorded amounts and reduce the risk of misstatements due to errors or fraud. This process confirms the existence, assesses the condition, and ensures the proper valuation of assets, thus enhancing the reliability and accuracy of financial statements. ISA 500 explains that audit evidence is the “information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based”. It also explains that “audit evidence includes both information contained in the accounting records underlying the financial statements and other information”.

The decision of using which type of the evidence depends on the level of audit risks and availability of such evidence. Audit evidence is the information auditors obtain in performing their audit work in order to form the basis of their opinion on financial statements. In this case, auditors have responsibilities to gather sufficient appropriate evidence on which to base their audit opinion. Auditing is the process of examining whether the financial statements containing material misstatement. In doing so, auditors need to gather and evaluate audit evidence related to various audit assertions. They conduct interviews or hold meetings with key personnel to gather types of audit evidence information and gain insights into the organization’s financial processes.