What are the requirements for AUDIT EVIDENCE? Explore ASA/ISA500

Summary

In this video, Dr. Amanda provides an overview of auditing standard ASA 500, which focuses on audit evidence. She explains the importance of collecting sufficient and appropriate evidence during an audit to form a reasonable opinion. The video covers methods for gathering evidence, such as inspection, observation, recalculation, and inquiry, while emphasizing the need for professional judgment. Dr. Amanda also introduces advanced techniques like mental models, vouching, and tracing to ensure the completeness and reliability of evidence. She concludes with practical tips on designing effective audit procedures.

Takeaways

• 📄 AS 500 focuses on audit evidence and guides auditors on collecting evidence during the audit of financial reports.
• 🎯 The objective is to design procedures to gather sufficient and appropriate audit evidence.
• 🔢 'Sufficiency' refers to the quantity of evidence needed, while 'appropriateness' refers to the quality and relevance of the evidence.
• 🧠 Auditors can collect evidence through setting a number of items, using checklists, or applying a mental model to assess if the evidence makes sense based on their understanding of the client.
• 📊 Risk of material misstatements affects how much evidence is considered sufficient.
• 🔍 Evidence must be relevant and reliable, and auditors must evaluate whether information used from the client is accurate and complete.
• 👨‍🔬 If using experts, auditors must ensure the experts' work is reliable and unbiased.
• ⚠️ Inconsistent evidence must be resolved by modifying audit procedures and ensuring conclusions align with available data.
• 🛠️ Common audit procedures include inspection, observation, confirmation, recalculation, re-performance, analytical procedures, and inquiry.
• 🔄 Auditors should use correct terminology, be specific, and customize procedures to fit the client’s systems and audit goals.

Q & A

What is the main focus of the 500 series of auditing standards?

The main focus of the 500 series of auditing standards is audit evidence, which encompasses all aspects related to collecting and evaluating evidence during an audit.

What does ASI 500 mean in the context of auditing standards?

ASI 500 refers to the overarching standard that guides auditors on what to consider overall when it comes to collecting audit evidence.

Why is it important for auditors to have sufficient and appropriate evidence?

Having sufficient and appropriate evidence is crucial for auditors to draw reasonable conclusions and form an opinion on the financial statements, as it ensures the reliability and validity of their audit findings.

What does 'sufficiency' of evidence refer to in auditing?

Sufficiency of evidence refers to the measure of the quantity of evidence needed to draw a conclusion, which can depend on the risks of material misstatements within the client's financial statements.

What does 'appropriateness' of evidence mean in the context of auditing?

Appropriateness of evidence means that the evidence is of the right quality, relevant, reliable, and is obtained using the right mix of procedures to gather the audit evidence.

How can auditors determine if they have collected sufficient and appropriate evidence?

Auditors can determine if they have sufficient and appropriate evidence by using professional judgment, which is informed by experience, practice, and understanding of the client's business and financials.

What are some methods auditors use to collect evidence?

Auditors use methods such as inspection of documents and tangible assets, observation, external confirmation, recalculation, reperformance, analytical procedures, and inquiry to collect evidence.

What is the significance of the mental model approach in determining the sufficiency of evidence?

The mental model approach is significant because it allows auditors to use their understanding of the client to assess whether they have enough evidence, rather than relying on a set number or checklist, leading to a more contextually appropriate assessment.

Why is it important for auditors to consider the risks of material misstatements when collecting evidence?

Considering the risks of material misstatements helps auditors to determine the extent of evidence needed, as higher risks may require more evidence to mitigate the possibility of incorrect conclusions in the audit opinion.

What should auditors do if they encounter inconsistent evidence during an audit?

If auditors encounter inconsistent evidence, they should consider changing their audit procedures to resolve the inconsistency and investigate the cause, as it may indicate issues such as fraud or poor internal controls.

How do the four basic rules for audit procedures mentioned in the script contribute to a more effective audit?

The four basic rules for audit procedures—using correct audit terms, client names for things, being specific, and ensuring the procedure is fit for purpose—contribute to a more effective audit by ensuring clarity, accuracy, and relevance in the audit process.