ISA 500 - Sufficient, Appropriate Evidence

Analytical Procedures

ISA 500 - Sufficient, Appropriate Evidence

ISA 550 - Related Parties

Relying on Work of Others

Planning

During Audit

Completion

Reliance at your own risk

Sufficient

Appropriate

Quantity

Quality

Red Flags

Existence of RP

Double-Check

Professional Judgement

Relevant

Risk Assessment

To Test Completeness

Assertions

Requirements:

• Ensure expert's work is adequate for the purpose of the audit
• Assess expert's objectivity and competence
• Assess expert's scope
• Assess appropriateness of work as evidence

Reliable

• Lending/borrowing below market interest rates
• Exchange of assets
• Unusual Transactions near Year-end
• Zero value transactions

• Prior year working papers
• Review entity's procedures for identification
• Inquire with Directors
• Obtain listing of principal shareholders
• Review Board Minutes

Test of Controls

Substantive Tests

Effected by:

• Internal Controls Reliance
• Risk
• Materiality
• Past Experience
• Audit results
• Quality

Direct

Indirect

Qualify opinion if:

• Management refuse to obtain expert
• Relevance and Reliability of experts evidence is uncertain
• Management refuses second expert when auditor requests

Auditor > 3rd Party

3rd Party > Client

Written > Oral

Original > Copy

When evidence conflicts

Investigate

Additional Evidence

Methods of obtaining evidence

ISA 230 - Documentation

Management Representation Letter

ISA 610 - Using the work of Internal Auditors

Test of Controls

Substantive Tests

• Sufficiently details and complete
• Up to date
• Include all relevant facts

Management to Auditors

Prevent - Control - Detect

Fraud & Error

For Judgement Areas

Examples

Why?

Analytics

Enquiry

Inspection

Observation

Utation

Operation throughout the period

Auditor must evaluate the internal auditors:

• Are the staff adequately qualified?
• Was the work properly supervised, reviewed and documented?
• Was adequate evidence obtained?
• Are the conclusions appropriate?
• How do they respond to exceptions
• Are they independent?
• Report to audit committee

Comp

• Organisational structure
• Planning Process
• Risk Assessment
• Communications
• Representation Letter

• Assist in forming opinion
• Evidence in court
• Increase efficiency and effectiveness of audit
• Assist future audits
• Proof regulations/requirements have been followed

Assertions

Indirect evidence

Analytical Procedures are easier & quicker so use with Test of Controls

Test sample of internal auditors sample

NOT sufficient, appropriate evidence

Assertions

ISA 540 - Estimates and Fair Values

ISA 550 - Related Parties

Management Representation Letter

b) Balance Sheet

c) Presentation

a) Income Statement

Aim: Obtain sufficient, appropriate evidence as to whether estimates are reasonable and adequately disclosed

Why?

If one party has the ability to control the other party, or exercise significant influence over financial and operational decisions.

• Supportive evidence
• Directors acknowledge responsibility

• Existence
• Rights & Obligations
• Completeness
• Valuation

• Occurence
• Completeness
• Accuracy
• Cut-off
• Classification

• Occurence
• Rights & Obligations
• Completeness
• Classification
• Accuracy & Valuation

What If Management refuses to sign?

Risk: Financial results may be manipulated through non-arm's length transactions

Question integrity

Audit Procedures

• Check subsequent events
• Evaluate mgmt's methods
• Test relevant controls
• Reperform mgmt's calculation

Examples:

Disclaimer opinion

At planning, assess:

• How mgmt identify transactions requiring estimation
• How mgmt make estimates
• Controls
• Experts
• Assumptions
• Prior period comparison

Resign

• Financial Instruments
• Debtors (AR)

Examples:

• Revenue
• Research & Development Expense

Limitations

1. Identify

2. Confirm existence

3. Verify valuation

4. Establish outcome of transactions

5. Evaluate disclosure

• IAS 33 - EPS
• IAS 24 - Related Parties

• Not independence
• Not reliable
• Meaning may be misunderstood by the client

Audit Procedures

ISA 550 - Related Parties

Management Representation Letter

Disclosure

Contents

Think Outside These

Analytical Procedures

Enquiry

Inspections

Observation

CompUtation

External Confirmation

Reperformance

• Nature
• Type
• Volume
• Pricing Policy

• Purchase / Sales
• Agency Agreements
• Transfer of R&D
• Licensing Agreements
• Finance / Loans
• Guarantees
• Management Contracts

• Directors acknowledge responsibility
• Confirm all books and records were given to auditors
• All related parties have been identified and name to auditors
• Compliance with laws and regulations
• Subsequent events have been disclosed to auditors
• Reasoning for not adjusting for immaterial misstatements

Article 13 - Proof or Procedures