Audit evidence is information used by
auditors to form conclusions and opinions.
Includes information from accounting
Definition of Audit Evidence records and other sources.
Paragraph 05, VSA 500 defines audit
Chapter 4 covers audit evidence and audit evidence as essential for forming audit
sampling. opinions.
Importance of appropriateness and Audit evidence includes internal and
sufficiency in audit evidence. external documents.
Types of audit procedures and methods of Internal documents: sales contracts, lease
gathering evidence. Summary of Chapter 4 agreements, sales invoices, purchase
orders, depreciation schedules.
Conclusion Types of Audit Evidence
Definition and process of audit sampling.
External documents: confirmation
statements from banks, customer replies,
Key terms and concepts related to audit customer orders.
evidence and sampling.
Auditors must obtain sufficient
appropriate audit evidence to draw
reasonable conclusions.
Evidence: Information used to form audit
conclusions.
Appropriateness (quality) includes
Sufficiency: Quantity of evidence needed. Requirements for Audit Evidence relevance and reliability.
Appropriateness: Quality of evidence, Sufficiency (quantity) depends on the risk
including relevance and reliability. of misstatements and the quality of audit
evidence.
Reliability: Trustworthiness of evidence.
Relevant evidence supports specific
financial statement assertions.
Relevance: Pertinence to audit objectives.
Definitions Reliable evidence is more trustworthy if
Sampling: Selecting a subset of items for Key Terms obtained from external, independent
audit procedures. sources.
Appropriateness of Audit Evidence
Audit sampling: Applying procedures to Audit Evidence Evidence obtained directly by auditors is
less than 100% of items.
more reliable than indirect evidence.
Sampling risk: Probability of incorrect Audit assertions are properties that must
conclusions due to sampling. be true for account balances, transactions,
Non-sampling risk: Incorrect conclusions
Audit Evidence and or disclosures to be correctly stated.
due to factors other than sample size. Audit Sampling Assertions about account balances:
existence, rights and obligations,
completeness, valuation and allocation.
Audit sampling is the application of audit
procedures to less than 100% of items Assertions about transactions and events:
within a population. Audit Assertions occurrence, completeness, accuracy,
cutoff, classification.
Representative samples have
characteristics similar to the population. Definition of Audit Sampling Assertions about presentation and
disclosure: occurrence, rights and
obligations, completeness, classification
Sampling risk is the probability of incorrect and understandability, accuracy and
conclusions due to sampling. valuation.
Non-sampling risk arises from factors other Various procedures are used to collect
than sample size, such as failure to audit evidence.
recognize misstatements.
Physical examination involves inspecting
Sampling risk can be minimized by Non-Sampling and Sampling Risk tangible assets.
adjusting sample size and using
appropriate selection methods.
External confirmation involves obtaining
information directly from third parties.
Statistical sampling involves random
selection and probability theory.
Inspection of records includes examining
Audit Sampling and matching documents.
Non-statistical sampling relies on auditor
judgment and experience. Statistical vs. Non-Statistical Sampling
Procedures to Collect Audit Evidence Analytical procedures involve evaluating
financial information through plausible
Both approaches require planning, relationships.
selection, and evaluation of results.
The audit sampling process includes Observation involves looking at processes
planning and design, selection, performing or procedures being performed.
procedures, and evaluating results.
Enquiry involves obtaining information
from the client.
Proper planning ensures the sample
relates to specific audit objectives.
Recalculation involves checking
mathematical accuracy of records.
Selection methods ensure representative Audit Sampling Process
samples.
Evaluation involves projecting results to
the population and considering sampling
risk.