AUDIT EVIDENCE

- The auditor should obtain sufficient appropriate evidence to be able to draw reasonable
conclusions on which to base the audit opinion.
- Evidence refers to the information obtained by the auditor in arriving at the conclusions
on which the audit opinion is based.
- Consists of:
o Underlying accounting data – accounting records underlying the financial
statements

 Books of accounts
 Related accounting manuals
 Worksheet
 Supporting cost allocations
 Reconciliations prepared by the client personnel

o Corroborating information – supports the underlying accounting data

obtained from client and other sources
 Invoices
 Bank statements
 Purchase orders
 Contracts
 Checks
 Other info obtained by the auditor through confirmation, recalculation,
observation and reconciliation
- The auditor should consider the sufficiency and appropriateness of audit evidence
obtained.
- When performing tests of control, audit evidences must support the assessed level of
control risk.
- When performing substantive tests, audit evidence must support the acceptable level of
detection risk.
o Sufficiency – amount of evidence that the auditor should accumulate
 The auditor uses his judgment to determine the amount of evidence
needed to support an opinion on the financial statements.
 The following factors may be considered in evaluating the sufficiency of
evidence:
 Competence – the more competent the evidence is, the less
amount of evidence is needed to support the auditor’s opinion
 Materiality – the more material the financial statement amount
being examined, the more evidence will be needed to support its
validity
 Risk – as the risk of misstatement increases, the more evidence
will be needed
 Experience – from previous audit
 o Appropriateness – measure of the quality of audit evidence and its relevance
to a particular assertion and its reliability
 Relevance relates to the timeliness of evidence and its ability to satisfy
the audit objective.
 Reliability related to the objectivity of evidence and is influenced by its
source and by its nature.
 The following generalizations could help the auditor in assessing the
reliability of audit evidence:
 Audit evidence obtained from independent outside sources is
more reliable than that generated internally. (ex. Confirmation
received from a third party)
 Audit evidence generated internally is more reliable when the
related accounting and internal control systems are
effective.
 Audit evidence obtained directly by the auditor is more
reliable than that obtained from the entity.
 Audit evidence in the form of documents and written
representations is more reliable than oral representations.
- There should be a rational relationship between the cost of obtaining evidence and the
usefulness of the information obtained.
- Audit evidence that is persuasive rather than conclusive.
 AUDIT DOCUMENTATION / WORKING PAPERS
- The sufficient appropriate evidence required by the professional standards must be
clearly documented in the auditor’s working papers.
- Working papers – records kept by the auditor that documents the
o audit procedures applied,
o information obtained and
o conclusions reached.
- PSA 230 requires the auditor to document matters that are important to support an
opinion on financial statements, and evidence that the audit was conducted in
accordance with PSA.

- Functions of working papers:

o Primarily,
 Support the auditor’s opinion on financial statements.
 Support the auditor’s representation as to compliance with PSA.
 Assist the auditor in the planning, performance, review and supervision of
the engagement.
o Secondarily, assist the auditor in
 Planning future audits
 Providing information useful in rendering other services (MAS or tax
consultancy)
 Providing adequate defence in case of litigation

- Form, Content and Extent of Audit Documentation:

o The auditor should consider what would enable an experienced auditor, having
no previous connection with the audit, to understand:
a. The nature, timing and extent of the audit procedures performed to
comply with PSAs and applicable legal and regulatory requirements;
b. The results of the audit procedures and the audit evidence obtained; and
c. Significant matters arising during the audit and the conclusions reached
thereon.
o Depend on factors such as:
 Nature of the audit procedures to be performed;
 Identified risks of material misstatement;
 Extent of judgment required in performing the work and evaluating the
results;
 Significance of the audit evidence obtained;
 Nature and extent of exceptions identified;
 The need to document a conclusion or the basis for a conclusion not
readily determinable from the documentation of the work performed or
audit evidence obtained; and
 Audit methodology and tools used
 o The following important items would normally require audit documentation:
 Discussions of significant matters which management and others on a
timely basis.
 In exceptional circumstances, when the auditor judges it necessary to
depart from a basic principle or an essential procedure that is relevant in
the circumstances of the audit, the auditor should document how the
alternative audit procedures performed achieve the objective of the audit,
and, unless otherwise clear, the reasons for the departure.
 In documenting the nature, timing and extent of audit procedures
performed, the auditor should record:
a. Who performed the audit work and the date such work was
completed; and
b. Who reviewed the audit work performed and the date and extent of
such review.

- Classification of Working Papers:

a. Permanent File – contains information of continuing significance to the auditor in
performing recurring audits; most likely include the following:
o copies of the articles of incorporation and by-laws
o major contracts
o engagement letter
o organizational chart
o analyses if long-term accounts such as plant assets, long-term liabilities and
stockholders’ accounts
o internal control analyses
b. Current File – contains evidence gathered and conclusions reached relevant to the
audit of a particular year; normally include:
o a copy of the financial statements
o audit program
o working trial balance
o lead schedules
o detailed schedules
o correspondence with other parties such as lawyers, customers, banks and
management

- Ownership of working papers

o property of the auditor and the client has no right to the working papers
prepared by the auditor
o may sometimes serve as a reference source for the client (at the discretion of
the auditor) but they should not be considered as part or as a substitute for the
client’s records

- Confidentiality of working papers

 o Cannot be shown to third parties without the client’s permission (Sec. 4 of the
Philippine Code of Professional Ethics)
o In some instances the duty of confidentiality is overridden by the stature of law.
o The auditor can disclose confidential information to third parties even without
the client’s consent under the following circumstances:
 When disclosure is required by law or when the working papers are
subpoenaed by the court.
 When there is a professional right to disclose information such as when
the auditor uses his working papers to defend himself when sued by the
client for negligence.

- Retention of working papers

o Working papers should be retained by the auditor for a period of time sufficient
to meet the needs of his practice and to satisfy any pertinent legal requirements
of record retention.

- Guideline for the preparation of working papers

o The following techniques may be used by the auditor when preparing working
papers:
a. Heading – name of the client, type of working paper, a description of its
content and the date or period covered by the examination
b. Indexing – use of lettering or numbering system; each working paper must
be indexed to aid in cross-referencing essential information
c. Cross-indexing / cross referencing – important to provide a trail useful
to supervisors in reviewing the working papers
d. Tick marks