ACCA AAA · Chapter 13
Audit evidence
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Designing sufficient appropriate evidence
Evidence for the assertion relevance, reliability and sufficiency
Sufficient and appropriate
- Sufficiency: quantity; appropriateness: quality
- Quality comprises relevance and reliability
- Assessed RoMM and quality affect quantity required
- More poor-quality evidence cannot make it reliable
Relevance
- Addresses the purpose and particular assertion
- Property inspection supports existence, not impairment value
Reliability
- Consider source, nature and circumstances
- Direct, independent, controlled, written, original is generally stronger
- External evidence can still rely on flawed management data
Professional scepticism
- Investigate contradictions, bias and doubtful documents
Transactions and related disclosures
- Occurrence, completeness, accuracy, cut-off
- Classification and presentation
Balances and related disclosures
- Existence, rights and obligations, completeness
- Accuracy, valuation and allocation
- Classification and presentation
Design from the risk
- Determine required accounting treatment
- Identify possible misstatement and relevant assertion
- Specify action, source and purpose of procedure
Evidence techniques
- Analytical procedures; enquiry and confirmation
- Inspection; observation; recalculation and reperformance
Choose the audit approach
- Test operating effectiveness if relying on controls
- Test when substantive procedures alone are insufficient
- Use substantive approach for absent or poor controls
Tests of controls
- Cover operation throughout relevant period
- Inspection, observation and reperformance may be used
- Enquiry alone is insufficient
Evaluate deviations
- Investigate frequency and cause
- Revise control risk and substantive work if necessary
Always substantive
- Procedures for each material class, balance and disclosure
When used
- Required in planning risk assessment
- Required near completion for overall conclusion
- May provide substantive evidence
Substantive use
- Check suitability for assertion and data reliability
- Develop sufficiently precise expectation
- Set acceptable difference before investigation
- Investigate and corroborate significant differences
Respond to surprises
- Quantify and investigate unexpected relationships
- Test management’s explanation against other evidence
- Reassess risk and perform further procedures if needed
Selected techniques and evaluation
Reach a supported conclusion resolve exceptions and contradictions
ISA 505 process
- Identify assertion and knowledgeable confirming party
- Design request and verify the recipient address
- Control dispatch and receipt of responses
- Assess authenticity and investigate exceptions
Limits
- Non-response is not evidence; use alternative procedures
- Oral response is not an external confirmation
- Management-forwarded reply may have been altered
Management refusal
- Investigate reasons and implications for risk/integrity
- Perform alternatives and consider TCWG/reporting implications
ISA 530 design
- Define test objective and relevant population
- Check population completeness and suitability
- Choose size to reduce sampling risk appropriately
- Give each sampling unit an opportunity of selection
Evaluate
- Investigate deviations or misstatements
- Project misstatements and assess sample results
- Use alternative procedure if selected item cannot be tested
Selected items differ
- High-value or unusual items are not a projected sample
- Conclusions apply only to items examined
ISA 501
- Physical inventory counting attendance
- Litigation and claims
- Segment presentation and disclosure
Risk-specific work
- Address accounting treatment and the assertion
- Test entity-produced information for completeness/accuracy
- Challenge significant assumptions and judgements
Conflicting evidence
- Compare forecasts with actual and external data
- Corroborate management explanations
- Do not select only evidence favouring management
Evaluate the whole picture
- Does each item establish the matter tested?
- Is the source reliable and evidence consistent?
- Have exceptions and contradictions been resolved?
- Is there sufficient appropriate evidence overall?
If concerns remain
- Explain the evidence limitation or contradiction
- Reassess RoMM and perform further procedures
- Evaluate any possible misstatement
Exam application
- State what the procedure establishes
- Link conclusion to the assertion and available evidence
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