AUDIT EVIDENCE

• AUDIT EVIDENCE
  AUDITING
  MEANING OF THE AUDIT EVIDENCE
• THE INFORMATION WHICH MAY BE ORAL OR WRITTEN OBTAINED FOR THE PURPOSE OF THE AUDIT IS KNOWN AS AUDIT EVIDENCE. AUDITOR NEEDS EVIDENCE TO OBTAIN INFORMATION FOR ARRIVING AT JUDGMENT,
• ACCORDING TO AAS 1,” THE AUDITOR MUST OBTAIN SUFFICIENT AND APPROPRIATE AUDIT EVIDENCE THROUGH THE PERFORMANCE OF COMPLIANCE AND SUBSTANTIVE PROCEDURE TO ENABLE HIM TO DRAW CONCLUSIONS SO AS TO MAKE OPINION ON THE FINANCIAL STATEMENTS.
• SUFFICIENT AND APPROPRIATE AUDIT EVIDENCE

1. SUFFICIENCY MEANS QUANTUM OF THE AUDIT EVIDENCE
2. APPROPRIATENESS RELATES TO ITS RELEVANCE AND RELIABILITY
3. RELY ON EVIDENCE THAT IS PERSUASIVE RATHER THAN CONCLUSIVE
4. FACTORS WHICH INFLUENCE SUFFICIENCY AND APPROPRIATENESS OF AUDIT EVIDENCE

1. THE MATERIALITY OF THE ITEM
2. TYPE OF AVAILABLE INFORMATION
3. EXPERIENCE GAINED DURING PREVIOUS AUDITS
4. TRENDS INDICATED BY ACCOUNTING RATIOS AND ANALYSIS

5. THE DEGREE OF RISK OF MANAGEMENT WHICH IS INFLUENCED BY FACTORS:

1. NATURE OF THE ITEM
2. ADEQUACY OF INTERNAL CONTROLS
3. FINANCIAL POSITION OF ENTITY
4. NATURE AND SIZE OF THE BUSINESS ENTITY

• TYPES OF AUDIT EVIDENCE
• DEPENDING UPON NATURE

1. VISUAL
2. ORAL
3. DOCUMENTARY

• DEPENDING UPON SOURCE:-

1. INTERNAL
2. EXTERNAL

• DEPENDING UPON IMPACT:-

1. PERSUASIVE
2. CONCLUSIVE

• EXTERNAL AND INTERNAL EVIDENCE
• INTERNAL EVIDENCE IS ONE THAT HAS BEEN CREATED,USED WITH IN THE CLIENT’S ORGANIZATION
• EXAMPLE OF WAGE SHEET,INVENTORY REPORTS,SALES INVOICES,DEBIT NOTES /CREDIT NOTES
• EXTERNAL EVIDENCE:- IS ONE WHICH ORIGINATED OUTSIDE THE CLIENT’S ORGANIZATION FOR EXAMPLE: PURCHASE INVOICE,QUOTATION,PAYEE’S RECEIPT ETC
• EXTERNAL EVIDENCE IS REGARDED IS MORE RELIABLE AS IT COMES FROM THIRD PARTIES
• RELIABILITY OF THE EVIDENCE
• THE RELIABILITY OF AUDIT EVIDENCE IS INFLUENCED BY FOLLOWING FACTORS:-

1. SOURCE : INTERNAL OR EXTERNAL
2. NATURE:-VISUAL.DOCUMENTARY OR ORAL
3. CIRCUMSTANCES UNDER WHICH IT IS OBTAINED
4. NATURE OF THE ASSERTION OBTAINED AND MATERIALITY

• RELIABILITY OF THE EVIDENCE
• AAS 5 DESCRIBES THE FOLLOWING GENERALIZATION:-

1. EXTERNAL EVIDENCE IS MORE RELIABLE THAN INTERNAL EVIDENCE
2. INTERNAL EVIDENCE IS MORE RELIABILITY WHEN RELATED INTERNAL CONTROL IS SATISFACTORY
3. EVIDENCE OBTAINED BY THE AUDITOR HIMSELF IS MORE RELIABLE THAN THAT OBTAINED FROM THE ENTITY.
4. EVIDENCE IN THE FORM OF DOCUMENTS AND WRITTEN REPRESENTATION IS MORE RELIABLE THAN ORAL REPRESENTATIONS.

• PROCEDURE TO OBTAIN AUDIT EVIDENCE

1. COMPLIANCE PROCEDURE
2. SUBSTANTIVE PROCEDURE

• COMPLIANCE PROCEDURE

1. ARE AUDIT TESTS DESIGNED TO OBTAIN A REASONABLE ASSURANCE AS TO RELIABILITY OF INTERNAL CONTROL SYSTEM
2. EXISTENCE:- THAT THE INTERNAL CONTROLS EXISTS
3. EFFECTIVENESS:- THAT THE INTERNAL CONTROL IS OPERATING
4. CONTINUITY:- THAT THE INTERNAL CONTROL HAS SO OPERATED THROUGHOUT THE PERIOD UNDER AUDIT

• SUBSTANTIVE PROCEDURE
• SUBSTANTIVE PROCEDURE:-

1. TESTS OF DETAILS: VOUCHING AND VERIFICATION
2. ANALYTICAL PROCEDURE: ANALYZING SIGNIFICANT RATIOS AND TRENDS
3. THE  AUDITOR IS CONCERNED WITH THE FOLLOWING ASSERTIONS:-
4. EXISTENCE: EXISTENCE OF AN ASSET AND LIABILITY ON GIVEN DATE
5. RIGHT AND OBLIGATION RELATING TO AN ASSET AND LIABILITY
6. OCCURRENCE OF AN EVENT DURING THE RELEVANT PERIOD
7. COMPLETENESS OF RECORDS RELATING TO TRANSACTIONS,ASSETS AND LIABILITIES
8. PROPER VALUATION OF ASSETS AND LIABILITIES
9. ENTRY OF TRANSACTION WITH PROPER AMOUNT AND ALLOCATION TO THE PROPER PERIOD
10. DISCLOSURE,CLASSIFICATION AS PER RECOGNIZED ACCOUNTING PRACTICES AND LEGAL REQUIREMENTS

• DIFFERNECE
• COMPLIANCE PROCEDURES

1. USED TO ASSESS THE RELIABILITY OF INTERNAL CONTROL SYSTEMS
2. THEY PROVIDE EVIDENCE AS TO WHETHER THE MISSTATEMENT IS LIKELY
3. THESE ARE CONDUCTED ON THE AREAS GOVERNED BY INTERNAL CONTROL

• SUBSTANTIVE PROCEDURE

1. DESIGNED TO ASSESS VALIDITY AND PROPRIETY OF ACCOUNTING TREATMENT OF TRANSACTIONS
2. THEY PROVIDE EVIDENCE ABOUT WHETHER THE MISSTATEMENT ACTUALLY EXIST
3. THEY ARE CONDUCTED IN THE AREAS WHICH ARE JUDGMENTAL IN NATURE

• METHODS OF COLLECTING EVIDENCE

1. VOUCHING:- VERIFIES THE AUTHORITY AND AUTHENTICITY OF THE RECORDED TRANSACTIONS WITH THE HELP OF DOCUMENTARY EVIDENCE
2. CONFIRMATION:- THE AUDITOR INDEPENDENTLY COMMUNICATE WITH OUTSIDE PARTIES TO ASCERTAIN THE VALIDITY AND CORRECTNESS OF THE TRANSACTIONS. FOR EXAMPLE WRITTEN STATEMENTS FROM THE DEBTOR
3. RECONCILIATION:-THE AUDITOR RECONCILES THE DIFFERENCE IN THE FIGURES ARRIVED AT BY USE OF DIFFERENT METHODS
4. PHYSICAL EXAMINATION: THE PHYSICAL EXISTENCE OF THE TANGIBLE ASSETS APPEARING IN THE BALANCE SHEET IS VERIFIED THROUGH PHYSICAL INSPECTION
5. TESTING:- SELECTION OF SUFFICIENTLY REPRESENTATIVE TRANSACTIONS AND EXAMINING THEM

6. ANALYSIS:- SEGREGATING OF IMPORTANT FACTS TO STUDY THEIR RELATIONSHIP
7. SCANNING:-
8. EXTENSION VERIFICATION:-MULTIPLICATION OF TWO OR MORE ITEMS TO ESTABLISH THE ACCURACY OF CERTAIN FIGURES
9. INQUIRY: FOR GATHERING IN DEPTH INFORMATION
10. VERIFICATION OF POSTING
11. FLOW CHARTING IS DONE TO DETERMINE THE STAGES OF TRANSACTIONS AND DOCUMENTS ORIGINATING AT DIFFERENT STAGES
12. FOOTING:- CHECK THE TOTALS,THE COLUMNS OF DIFFERENT ACCOUNTING FIGURES ARE ADDED

13. OBSERVATION THE PROCESS PERFORMED BY OTHERS
14. SCOURING: CRITICAL STUDY OF THE FEATURES OF THE DATA

• TYPES OF EVIDENCE

1. ACCOUNTING SYSTEM
2. PHYSICAL EVIDENCE
3. DOCUMENTARY EVIDENCE
4. JOURNALS AND LEDGERS
5. RATIOS
6. CIRCUMSTANTIAL EVIDENCE
7. ORAL EVIDENCE
8. SUBSEQUENT EVIDENCE
9. COMPUTERIZED RECORDS