Audit evidence are information collected by auditor and recorded in audit working papers to support the assertion of financial statements. In other words audit evidence are information collected by auditor to support his opinion with regard to truth and fairness of financial statements. Audit evidence is required to be both sufficient and appropriate. In order to be appropriate audit evidence need to be both relevant and reliable.
There are number of general principles set out in ISA 500 to assist the auditor in assessing the relevance of the audit evidence. These can be summarized as follows:
- A given set of audit procedures may provide audit evidence that is relevant to certain assertion, but not others. For example , inspection of documents related to to collection of receivables after the period end may provide audit evidence regarding the existence and valuation of receivables but not necessarily cut – off
- Substantive procedures are designed to detect material misstatements at the assertion level. Designing substantive procedures includes identifying conditions relevant to the purpose of the test that constitute a misstatement in the relevant assertion.
- Relevance deals with the logical connection with, or bearing upon, the purpose of the audit procedure , and, where appropriate, the assertion under consideration. For example, relevance may be affected by direction of testing, say when testing for overstatement in the existence or valuation of accounts payable, testing the recorded accounts payable may be a relevant audit procedure. on the other hand , when testing for understatement, testing recorded accounts payable would not be relevant, but rather testing subsequent disbursements, unpaid invoices, suppliers statements and unmatched receiving reports may be relevant.
- Test of controls are designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatement at the assertion level. Relevant audit evidence would include identifying conditions that indicate performance of controls, and deviation conditions. The presence or absence of those conditions can be tested by the auditor.
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