Appropriate And Sufficient Audit Evidence

Audit Evidence is defined in the Auditor’s Dictionary, by David O’Regan, as “information that supports or refutes an audit objective”. Sawyer’s Guide for Internal Auditors states that Audit Evidence is “the information internal auditors obtain through observing conditions, interviewing people, and examining records.”

International Standards on Auditing (ISA) 500, Audit Evidence, states that the objective of the auditor is to design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.

This standard states that audit procedures such as inspection, observation, external confirmation, recalculation, analytical procedures, and enquiry can be used to gather sufficient appropriate audit evidence that will be used to support an auditor’s opinion and report. The sufficiency and appropriateness of audit evidence An audit evidence should be sufficient and appropriate.

Sufficiency is the measure of the quantity of audit evidence as there should be enough evidence to support an auditor’s findings. The quantity of audit evidence required in an audit engagement is affected by the auditor’s assessment of the risks (the higher the assessed risks, the more audit evidence is likely to be required).

However, obtaining more audit evidence, may not equals a quality audit engagement. In order to determine the sufficiency of audit evidence, the following questions should be asked:

Ÿ Is there enough evidence to convince a reasonable person of the validity of the findings?

Ÿ Is the audit evidence factual, adequate, and convincing?

Ÿ Would a layperson come to the same conclusion as the auditor, using your judgment and still be objective.

Appropriateness is the measure of the quality of audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based. Relevant information supports observations and recommendations and is consistent with the objectives for the engagement.

Relevant information should have a logical, sensible relationship with the associated audit finding. There is also guidance available to help auditors assess the relative reliability of various different types of evidence.

The general rules are as follows:

Ÿ Evidence generated by the auditor is more reliable than evidence generated by the auditee. Ÿ External evidence is more reliable than internally generated evidence.

Ÿ Written evidence is more reliable than verbal documents, assets Inspection of documents gives evidence of existence, completeness, ownership.

Also, documents are inspected to confirm authorization.

Physical verification of assets to confirm its existence.

Observation The internal auditor can observe a procedure being performed (for example, attendance of a stocktake by auditors). This will provide audit evidence about the performance of a process or procedure. Enquiries Seeking confirmation from another source of details in client’s accounting records, for example, confirmation from bank of bank balances.

The internal auditor obtains information from staff in order to aid the audit \ assignment. The internal auditor will have to consider the knowledge, objectivity, experience and responsibility of the individual to be interrogated; The internal auditor should ask clear and concise questions by using open or closed questions appropriately; the internal auditor should listen actively and effectively while maintaining a sceptical mind-set; and the internal auditor should evaluate the interviewee’s responses and other audit procedures performed, and ask follow-up questions.

External confirmation The internal auditors checks arithmetic accuracy of calculations, for example, recalculating claims for excess charges from customers, recalculating interest expense, recalculating depreciations amounts, casting an account balance, etc. The auditor will compare sets of data in order to identify trends and understand the relationships between the sets of data. For example, the auditor will compare the bank’s gross profit margin with that of the industry average and investigate any significant differences between them.

Computations or recalculation Re-Performance It is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal controls. Analytical procedures evidence. How do internal auditors gather audit evidence? Internal auditors use different audit procedures to gather audit evidence. A summary of the usual ones are listed below:

Professional Skepticism The question of if sufficient appropriate audit evidence has been obtained in order for the auditor to reach a reasonable conclusions on the audit engagement is a matter of professional judgment. The auditor should critically assess audit evidence and be alert for contradictory evidence that may undermine the sufficiency and appropriateness of evidence obtained.

How to preserve the Audit Evidence gathered? The auditor must appropriately document all work done. This must contain sufficient information to enable an experienced internal auditor, without previous connection with the audit engagement to understand the nature of the control tested, the terms of the work completed, the conclusions reached, and the reasoning behind these conclusions. The documentation of the design and performance of audit procedures may take place by using free form working papers. The working papers should also describe how the audit tests were performed and should provide a list of the actual deviations found and conclusions reached. Working papers / Essentials of Good Working Papers ISA 230 Audit Documentation clearly states that the working paper should be clearly referenced so that it can be filed appropriately and found easily when required at a later date.

The essentials of good working papers are as follows:

1. Working papers should contain all necessary information so that they may be of maximum use especially as documentary evidence when the auditor has to defend himself against the charges of negligence, etc. leveled against him. 2. They should be properly organized and arranged so that one may not experience difficulty in locating a particular document. 3. They must contain accurate information so that they can be reliable. 4. They should contain the facts, which are of self-explanatory. 5. The facts given in working papers should be readily apparent to the reader. 6. The audit working paper should be properly preserved and filed. These files should be serially numbered and indexed so that they may be made available when required. It should be noted that the working papers are the auditor’s property, not the auditee’s.

They should be filed appropriately and archived for reference purposes. Difficulties faced by the internal auditor in gathering and preserving audit evidence Ÿ Lack of cooperation from the auditees: Gathering of information is a skill which the internal auditor should possess. However the auditor will be faced with challenges from the auditees not cooperating in disclosing relevant information.

According to Mihret and Grant (2017), “the whole process of internal audit evidence-gathering, undertaken with the cooperation of the auditee, presumes auditees’ self-knowledge [and] because the effectiveness of internal auditing as a surveillance mechanism depends on whether the auditee has knowledge of when audits are to be conducted” the authors propose that “Auditees will tend to be suspicious of the role of internal auditing and thus be minimalist in their cooperation with (or support of) internal auditors because auditing may be perceived as a surveillance tool with a disruptive impact on the regular activities of the organization” (p.707).

We argue that if for example, there is scope limitation or internal audit recommendations are not implemented, this will serve to demotivate internal auditors in executing their mandate, going forward…. Ÿ Inadequate skills of the auditor: The internal auditor should also possess skills such as communications skill, negotiation skills, critical thinking, IT skills, continuous professional development, persuasion and collaboration skills, all these skills will assist the auditors in gathering evidence so the auditors should sharpen and expand their skills. Ÿ Poor Archiving system:

The internal auditor needs to understand the importance of obtaining and keeping working papers, which is his property and not that of the auditee. The internal auditor may be faced with the constraints of how and where to archive working papers. The Bank should make available lockable storage cabinets that is accessible to only a few select people. For an added level of protection, the lockable storage cabinets should be in a locked room that cannot be easily accessed.

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