As already mentioned, the reliability of information to be used as audit evidence depends on its source and nature and the circumstances under which it is obtained. However in respect of audit evidence reliability, isa 500 outlines a number of generalisations, some of which are: The reliability of audit evidence is increased when it is obtained from independent sources outside the entity. Audit evidence obtained directly by the auditor (for example, observation of the application of a control) is more reliable than audit evidence obtained indirectly or by inference (for example, inquiry about the application of a control). Audit evidence in documentary form, whether paper, electronic, or other medium, is more reliable than evidence obtained orally. Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles, or documents that have been filmed, digitised or otherwise transformed into electronic form. The generalisations above are however subject to relevant exceptions. For instance information obtained from an independent source outside the entity may not be reliable if the source is not knowledgeable. Similarly a managements expert may lack objectivity.
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Inquiries are important as they may provide new information to the auditor or corroborative audit evidence or, on wife the contrary, information that differs significantly from other information obtained by the auditor. What information can be used as audit evidence? When designing and performing audit procedures to verify assertions in the financial statements, the auditor should consider whether the outcome of the procedures would constitute relevant and reliable audit evidence. Audit evidence would be relevant if it is capable of meeting the purpose of the audit procedure, which is normally that of verifying an assertion in respect of a financial statements item. The relevance of evidence produced in respect of a specific audit objective may also depend on the direction of testing. For instance when an audit objective of a procedure is that of testing for existence or valuation of accounts payable, testing the recorded accounts payable may produce relevant audit evidence. However when the audit objective is that of testing completeness (ie understatement) hutt of accounts payable, testing the accounts payable already recorded would not be relevant, as it could be, for instance, testing information like subsequent disbursements, unpaid invoices and suppliers statements. Audit procedures may provide evidence that is relevant to certain assertions but not others. For example the inspection of documents in respect of the collection of receivables after the year end may provide relevant evidence about existence and valuation but not cut-off. However audit evidence from different sources or of a different nature may be relevant to the same assertion.
Substantive analytical procedures are generally more applicable to large volumes of transactions that tend to be predictable over time and for which there is an expectation that the for relationships among data exist and will continue in the absence of indications to the contrary. Sometimes a simple model may work out as effective analytical procedures. For instance if an entity has a stable number of employees at fixed rates of pay during a period, then the auditor may estimate the total payroll costs for the period with a high level of accuracy, therefore obtaining audit evidence for a significant item. In other cases analytical procedures may provide less persuasive evidence, for instance when gross margin percentages are calculated and compared in order to confirm a revenue amount, that may in any case be relevant if used with other procedures. An example of effective combination of substantive analytical procedures and tests of details could be in respect of the valuation assertion for accounts receivable, where the auditor may perform analytical procedures on an aged list of debtors in addition to tests of detail on subsequent. Inquiry is a type of audit procedure that is used extensively during the performance of an audit in addition to other procedures. It consists of seeking both financial and non-financial information of knowledgeable persons within or outside the entity.
External confirmations are normally used when confirming assertions relating to account balances, like payables and receivables, but should not be restricted to such items only. The auditor may ask confirmation of ions the terms of agreements and transactions with third parties, whether any changes to existing agreements has occurred or whether no additional conditions are attached to an agreement, perhaps in a separate document. Recalculation is a procedure that consists of checking the mathematical accuracy of documents or records and that can be used to verify the accuracy of the recording of transactions or of the application of accounting policies, for example by recalculating depreciation of tangible assets. Recalculation however does not provide evidence of the accuracy of the estimated rate of depreciation charged in relation to each class of assets. Reperformance instead involves the independent execution by the auditor of procedures or controls that were originally performed as part of the entitys internal control. Analytical procedures can or should be used at various stages of an audit engagement: at the risk-assessment stage, as substantive audit procedures to verify financial statements assertions and towards the end of the audit to corroborate whether the financial statements are consistent with the auditors. Analytical procedures involve evaluations of financial information through analysis of plausible relationships among both financial and non-financial data. They also include investigation of fluctuations and relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. At the assertion level, analytical procedures may be used as substantive procedures either on their own or in conjunction with tests of details.
Similarly the inspection of tangible assets may provide reliable audit evidence about their existence but not about the entitys rights and obligations or the valuation of the assets. Another example may be the inspection of an executed contract that may provide evidence in respect of the entitys application of accounting policies like revenue recognition. Observation is instead an audit procedure that consists of looking at a process or procedure being performed by others so that evidence about the actual performance is obtained. However observation provides evidence that is limited to the point in time when it takes place and by the fact that being observed may influence how the process or procedure is performed on such occasion. Examples of observation are the auditors attendance at the inventory counting by the entitys staff and observing the performance of control activities. External confirmation procedures may be an important source of relevant and reliable audit evidence. External confirmation is audit evidence that is obtained as a direct written response to the auditor from a third party (the confirming party) in paper form, electronic medium or other medium.
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The detailed audit painful plan records the risk assessment procedures and the further audit procedures at the assertion level in response to the assessed risks. The audit plan describes the nature, extent and timing of the audit procedures to be performed by team members in respect of specific classes of transactions, account balances and disclosures. In the case of an audit of a small entity, the audit plan would normally be included in standard audit programmes and schedules used for the various transactions and account balances. In any case, the standard programmes need to be tailored so that the approach to an item, in terms of the use of substantive procedures, tests of controls or both, is proportional to the risk assessed for that item and is directed at obtaining audit. The audit evidence generated by the planned audit procedures should be sufficient and appropriate to support and corroborate, or to contradict, the managements assertions in respect of specific classes of transactions, account balances or disclosures in the financial statements. Audit procedures in respect of specific items in the financial statements should be designed with the objective of providing evidence capable of verifying the assertions embodied in an item, so that the auditor can draw a reasonable conclusion about that item. Audit evidence and the auditors conclusions in respect of the various assertions tested contribute to the overall audit evidence on which the auditors opinion is based.
The audit objectives in respect of the various assertions embodied in the financial statements, which need to be met by sufficient appropriate evidence provided by audit procedures, can be summarised as follows: When designing and performing audit procedures to verify specific financial statements assertions, the. In fact, out of the various procedures that can be performed by auditors, some are more suited to verify certain assertions in respect of specific classes of transactions, account balances and disclosures, while they may not produce relevant results in respect of the other assertions. In many cases a single type of procedure may not verify an assertion relating to an item and a combination of procedures will be needed to that affect. Inspection is an audit procedure based on the examination of records or documents, whether internal or external, that could be held in various forms, ie paper, electronic or similar, or on the physical assessment of an asset. The inspection of records and documents provides audit evidence whose reliability depends on their nature and source. Inspecting certain documents may provide direct audit evidence of the existence of an asset, for instance a financial instrument like a share or a bond where the document itself constitutes the asset. At the same time the inspection of the document may not provide evidence in respect of the assertions of ownership and valuation of the asset.
Appropriateness is the measure of the quality of audit evidence. The quality of audit evidence depends on whether it is relevant and reliable in providing support to the conclusions on which the auditors opinion is based. Whether evidence is reliable also depends on its source; for instance, whether it is generated by the client, a third party or the auditor; and also from its nature, whereby documentary evidence is normally more reliable than verbal evidence. Whether the audit evidence obtained in the course of an engagement is sufficient and appropriate to support the auditors opinion is a matter of professional judgment that the auditor needs to establish. Professional judgment is not, however, an abstract and subjective category of the auditors frame of mind, and should be informed by a structured approach to gathering evidence that is based on the assessed risks of material misstatement of the financial statements.
Designing and performing audit procedures for obtaining audit evidence. A number of isas (uk and Ireland namely isa 300, isa 315 and isa 330, require and explain that audit evidence should be obtained by performing risk assessment procedures and further audit procedures. Further audit procedures include tests of controls and substantive procedures, including tests of details and substantive analytical procedures. In particular, alongside an overall audit strategy that indicates the scope of the work, the resources of staff allocated to specific areas and the timing of the engagement, a more detailed audit plan should indicate the audit procedures to be performed in respect of specific. The results of the initial risk assessment procedures, like the entitys business risk assessment or the assessment of internal controls, are the basis on which to design the nature, timing and extent of further audit procedures to be performed in respect of the risks identified. Further audit procedures should respond to the assessed risks of material misstatement at the assertion level, so that sufficient appropriate evidence can be obtained in respect of those risks.
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Sufficient appropriate audit evidence, a large part of the work involved in the performance of an audit consists of obtaining and evaluating audit evidence, which is primarily derived from audit procedures carried out during the course of the engagement, but that can also be gained. For example sources like writing previous audits; provided that changes occurred in the meantime have been carefully taken into account; or the firms quality control procedures, especially around client acceptance and continuance. Audit procedures that are used to obtain audit evidence report are various and are often applied in combination. They can include inspection, observation, confirmation, recalculation, reperformance and analytical procedures, in addition to inquiry, as the latter does not normally provide sufficient audit evidence on its own. However, audit evidence obtained will only be useful in reducing to an acceptably low level the risk that the auditor could express an inappropriate opinion when the financial statements are materially misstated and, therefore, allow the auditor to draw reasonable conclusions, when it is sufficient. Sufficiency and appropriateness of audit evidence are two qualities that are interrelated. Sufficiency is the measure of the quantity of audit evidence. The quantity of audit evidence needed is affected by the risks of misstatement assessed by the auditor, whereby the higher the risks the more audit evidence required, and by the quality of the evidence, where the higher the quality the less evidence perhaps required. A large amount of audit evidence may, however, not compensate for its poor quality.
This Staff Working Paper outlines one potential systematic approach that could be used by researchers and securities market regulators, in the identifying and monitoring of systemic risks and risk build-up in entities, market infrastructures, products and activities. The setting "system" presented in this report relies on a list of practical and concrete indicators and offers a flexible and coherent process within which to use them. Authors : Werner Bijkerk ( rohini tendulkar ( samad Uddin; Shane worner ( ). It is also an aspect in respect of which audit regulators in various jurisdictions find common problems when inspecting completed audit engagements. Massimo laudato, technical adviser at acca, explains. Audit evidence and the objectives of an audit. The main objective of the work performed by the auditor in an audit engagement is that of obtaining reasonable assurance as to whether the financial statements, as a whole, are free from material misstatement, so that the auditor is able to express an opinion. To obtain reasonable assurance about the financial statements, which is a high but not absolute level of assurance, the auditor needs to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the. Isa (uk and Ireland) 500, audit evidence, explains what are the auditors responsibilities in obtaining audit evidence that can underpin the auditors opinion and what constitutes sufficient appropriate audit evidence for such purpose.
enterprises; (4) seeing increase. Authors : Rohini tendulkar ( ) and Gigi hancock, sWP3: Crowd-funding: An Infant Industry Growing Fast, february 2014. Description : peer-to-peer lending and equity crowd-funding have grown rapidly since the crisis and have attracted the attention of governments who wish to facilitate alternative forms of capital allocation. This report investigates the nature of Financial Return crowd-funding, including outlining the main benefits and risks of the industry and the global regulatory environment the industry currently operates. Authors : Eleanor Kirby and Shane worner ( sWP2: Cyber-Crime, securities Markets and Systemic Risk, joint Staff Working Paper of the iosco research Department and World Federation of Exchanges, july 2013. Description : joint report with the world Federation of Exchanges. This report explores the nature and extent of cyber-crime in securities markets so far; the potential systemic risk aspects of this threat; and presents the results of a survey to the world's exchanges on their experiences with cyber-crime, cyber-security practices and perceptions of the risk. Author : Rohini tendulkar ( sWP1: Systemic Risk Identification in Securities Markets, july 2012. Description : The financial crisis highlights the need to identify and monitor systemic risk in securities markets.
The report presents data and analysis in three streams: Identifying determinants of corporate bond writers market development in emerging markets; Tracking trends in primary and secondary market activity, including issuer make-up; and. Author : Rohini tendulkar ( sWP5: a survey of Securities Markets Risk Trends 2014: Methodology and Detailed Results. Description : This 2014 edition of the survey was conducted in March and is based on some 200 responses. The main purpose of the survey is to gather views on emerging trends within securities markets and to help identify or highlight pockets of risk that may not be captured by normal statistical analysis or desk research. Main trends and themes from the survey include: Issues considered "macro-prudential" in nature are high among the concerns; Regulators see risk emanating from disclosure and conduct issues while market participants are focused on markets changes; Respondents saw very few "risks" sourced within securities markets; over. The survey is an annual exercise formulated to collect the views of financial market regulators and experts globally on emerging trends that are or could be of concern. Author : Shane worner ( sWP4: Corporate bond Markets (Vol 1) - a global perspective. Description : This report provides a data-based overview of corporate bond markets over the last decade.
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Disclaimer: The Staff Working Paper below represent research in progress or 'thought pieces' on topics of interest, authored by the brief staff of the research Department. They are meant for research purposes only and do not constitute policy recommendations nor do they necessarily represent the views of iosco or its members. Please note: internal papers are accessible to iosco members through the "members only" tab. Swp7: a survey of Securities Market Risk Trends 2015: Methodology and detailed results. Author : Shane worner ( sWP6: Corporate bond Markets (Vol 2) An Emerging Markets Perspective. Description : The report is the second in a series on Corporate bond Markets. It presents findings from an in-depth study on the development and functioning of corporate bond markets in emerging markets specifically.