CH4: Evidence & Reporting

• Tests of control are audit procedures designed to evaluate the operating effectiveness of controls in preventing or detecting material misstatements at assertion level
• Substantive procedures are audit procedures designed to detect material misstatements at the assertion level
• Substantive procedures comprise of:

  • Tests of detail (of classes of transactions, disclosures or account balances)
  • Substantive analytical procedures
• ISA (UK) 500 requires auditors to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion
• Sufficiency is the measure of the quantity of audit evidence
• Appropriateness is the measure of the quality or relevance and reliability of the audit evidence
• Quantity of audit evidence requires is affected by the level of risk
• Assertions used by the auditor (6):

  1. Occurrence
  2. Completeness
  3. Accuracy
  4. Cut-off (is it logged in the correct accounting period)
  5. Classification (In proper accounts)
  6. Presentation
• Items included only by exception: (6)

  1. Adequate accounting records were kept
  2. Returns adequate for the audit
  3. The financial statements are in agreement with the accounting records
  4. All information & explanations have been received
  5. Details of directors' emoluments have been correctly disclosed
  6. Particulars of loans and other transactions in favour of directors have been disclosed
• 3 Examples of misunderstandings contributing to the expectations gap are;

  1. The nature of financial statements
  2. The type and extent of work undertaken by auditors
  3. The level of assurance given by auditors
• Audit procedures include:

  1. Tests of control
  2. Substantive procedures
• Implied opinions only require reporting when there is something wrong