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The Auditors Operational Standard requires the auditor to obtain ‘relevant and reliable audit evidence sufficient to enable him to draw reasonable conclusions therefrom.’ Required: a. What is audit...

      

The Auditors Operational Standard requires the auditor to obtain ‘relevant and reliable audit evidence sufficient to enable him to draw reasonable conclusions therefrom.’
Required:
a. What is audit evidence?
b. Explain the meaning of the following terms;

• Relevant audit evidence
• Reliable audit evidence
• Sufficient audit evidence.

c. Explain whether the following types of audit evidence meets the standards of relevancy, reliability
and sufficiency as required by the auditors operational standard with regard to:

• Written confirmation of a trade debtor circularised at year end;
• Work-in-progress stocks identified during the annual physical stock count;
• Solicitor’s letter confirming pending legal action;

  

Answers


Peter
a) Audit evidence; it will constitute or consist any information used by the auditor to enable him to arrive at conclusion necessary for his opinion. Auditing is concerned with the verification of accounting data and with determining the accuracy and reliability of accounting statements and reports.

b) (i.) Relevant audit evidence.
It depends on whether it assists the auditor to form an opinion on some
aspect of the financial statements. For example evidence that indicates that a
recorded asset exists is relevant to audit objectives.

(ii) Reliable audit evidence
Reliability of audit evidence can be assessed to some extent on the following presumptions:
• Documentary evidence is more reliable than oral evidence.
• Evidence from outside the enterprise is more reliable than that secured solely from within the enterprise.
• Evidence originated by auditor by such means as analysing and physical inspection is more reliable than evidence obtained from others.
• Evidence for a figure in accounts is usually obtained from several sources. The cumulative effect of several evidential sources which give a consistent view is greater than that from a single source.
• Original documents are more reliable than photocopies or facsimiles.

iii) Sufficient audit evidence

• The auditor’s judgement is influenced by:
• His knowledge of the business and its industry.



a. The degree of audit risk. Assessment of this is helped by considering:
b. Nature and materiality of items of account.
c. The auditor’s experience of the reliability of the management and the staff and records.
d. The financial position of the enterprise.
e. Possible management bias but also the management may wish to “even out” profits for stock market image or taxationpurposes.
f. The persuasiveness of the evidence.
g. The nature of the accounting and internal control system and the control environment.

(c) i) Written confirmation of a trade debtor circularised at year end.
Evidence from outside the enterprise is more reliable than that secured solely from within the enterprise. Though debtor circularisations may not be sufficient evidence depending on the case in question.
ii) Work in progress stocks identified during annual physical stock count. If the auditor was
present during the stock taking process then as the evidence has originated as a means of analysis and physical inspection by the auditor it is more reliable than if obtained from others. The auditor however needs to refer to other materials and statement so as to collect sufficient evidence.
(iii) Solicitors letter confirming pending legal action. It is more reliable evidence than evidence from management. However it will be sufficient on its own because the solicitor is the one who solely with the ease.

Musyoxx answered the question on March 14, 2018 at 16:11


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