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Audit evidence is a crucial concept which underlying the entire audit process. In order to draw a conclusion, audit evidence is the important information that used by auditor in arriving at the conclusions which audit opinion is a base in this process. (ISA 500), (Messier, Glover, Prawitt & Poh, Margaret, 2007), (Proposed SAS)
However, according to AU section 326, audit evidence is the data used by the auditor come to the conclusion base on the opinion of audit and comprise the data contained in the accounting records underlying the financial statements and other data. Auditors are not required to check all data that may exist. No matter the audit evidence are obtained by proper audit procedures or obtained from other sources, the audit evidence is consider as cumulative in nature. (AU section 326[AICPA, Professional Standards, vol. 1])
However, audit procedures are the specific acts that perform by auditor to collect evidence in order to arriving at the reasonable conclusions on which to base on the audit opinion are audit procedures. (Messier, Glover, Prawitt & Poh, Margaret, 2007), (AI 500 @ ISA 500)
Auditor need to understand the entity and entity's environment, it is include risk assessment of material misstatement at the financial statement, internal control and levels of assertion. Auditor has to test the effectiveness of operating of controls in detecting or preventing and correcting and detect material misstatements at the level of assertion as well. (AI 500 @ ISA 500)
For the purpose of achieve a satisfactory basis for the risks assessment at the levels of assertion and financial statement, procedures of risk assessment need to perform by auditor regularly. However, further procedures such as tests of controls and substantive procedures are also needed when the evidence provided were not sufficient appropriate. (AI 500 @ ISA 500)
According to AU section 326, the auditor must acquire adequate proper audit evidence by fulfilling audit procedures to provide a reasonable basis for a view regarding the financial statements under audit. (AU section 326[AICPA, Professional Standards, vol. 1])
Circumstance is one of the factors that will influence the obtaining of audit evidence. Therefore, the auditor ought to design and carry out audit procedures that are suitable for the certain circumstance for the purpose of acquiring adequate appropriate audit evidence. (ISA 500 @ AI 500)
For the evidence collected for particular clients is highly correlated with evidence collected for standard clients, archival research for future would be useful to determine if the relation between audit procedure and control risk assessment in their study holds in the present audit environment. (Janvrin, Bierstaker, and Lowe (2009))
Normally, the audit evidence that we obtained from one source to another is inconsistent. For instance, the responses given by internal audit, management, and others entities are inconsistent when been inquiry. ( Businessline (2009, Jun 4)).
Relevant evidence is the standard counsels auditors to seek for audit evidence that is relevant. Relevance is relate to the purpose of the audit procedure where appropriate, the assertion under consideration. ( Businessline (2009, Jun 4)).
This news had given an example:" if the purpose of an audit procedure is to test for overstatement in the existence or valuation of accounts payable, testing the recorded accounts payable may be a relevant audit procedure". ( Businessline (2009, Jun 4)).
There are many ways are used to collect audit evidence, there are observation, inquiry, analytical procedures, inspecting, physical examination, confirmation, recalculating, reconciliation and detail testing. (Franklin,n.d.), (AU section 326[AICPA, Professional Standards, vol. 1])
Four concepts of audit evidence are underlying under this topic, which is the nature of audit evidence, the appropriateness of audit evidence, the sufficiency of audit evidence and the evaluation of audit evidence. All of these concepts are important to comprehend the conduct of the audit. (Messier, Glover, Prawitt & Poh, Margaret,2007) , (AU section 326[AICPA, Professional Standards, vol. 1])
According to the Companies Act, Section 167, subsection 1 mention that the directors and the management demanded to keep proper accounting that sufficiently clarify the financial position and transactions of the company as well as to enable the financial statement reflect true and fair view. Besides, the companies act also requires that those accounting records must be preserving in such manner so that enable them to be appropriately and easily audited. (Messier, Glover, Prawitt & Poh, Margaret,2007) , (Companies Act, section 167(1))
Except accounting records, other forms of data and information also can be used as evidence for example comparable data from outside resources, confirmation from outside third parties and other material develops by the auditor to draw conclusions through inference. The audit evidence which is cumulative in nature because includes information from previous audits. While corroborating evidence is the information obtained through inspection, inquiry or physical examination. (Messier, Glover, Prawitt & Poh, Margaret,2007) , (AU section 326[AICPA, Professional Standards, vol. 1])
In order to be able to draw reasonable conclusions, sufficient appropriate audit evidence is needed. The audit evidence is considered appropriate when the evidence is both reliable and relevant. (Messier, Glover, Prawitt & Poh, Margaret,2007) , (AU section 326[AICPA, Professional Standards, vol. 1])
The sufficiency of evidence can be measured by quantity of audit evidence. More audit evidence is required when assess the greater risk. And the higher the quality of audit evidence, the less evidence that may be required. The relationship between appropriateness and sufficiency is an inverse. (Messier, Glover, Prawitt & Poh, Margaret,2007) , (AU section 326[AICPA, Professional Standards, vol. 1])
Another important skill that must be developed by auditor is the capability to evaluate appropriately. The auditor can only understand the evidence just when the auditor knows the proper evaluation of evidence. The auditor can more clearly about types of evidence that are relative reliability and available through proper evaluation. The purpose of proper evaluation is to determine whether the management's assertion can be supported. (Messier, Glover, Prawitt & Poh, Margaret,2007)
However, Risk assessment procedures refers to a set of procedures in assessing statements which are materially misstated and presented in financial reports by gaining an understanding of the entity, and therefore further audit procedures could be created. Examples of these procedures are such as inquiry, analytical procedures, observation and inspection. (Messier, Glover, Prawitt & Poh, Margaret,2007) , (AU section 326[AICPA, Professional Standards, vol. 1])
Test of control refers to a set of procedures that performed by auditor to ensure the effectiveness of the operation inside the entity. Examples of these procedures are such as inquiry, inspection of document, observation, walkthroughs, and re-performance. (Messier, Glover, Prawitt & Poh, Margaret,2007) , (AU section 326[AICPA, Professional Standards, vol. 1])
Substantive procedures refer to a set of procedures to undercover material misstatement at the level of assertion. Normally is detecting monetary errors in the financial statement. Substantive procedures can divide into two categories. There are tests of details of account balances, transactions and disclosure. (Messier, Glover, Prawitt & Poh, Margaret,2007) , (AU section 326[AICPA, Professional Standards, vol. 1])
The conclusion, audit evidence have close relationship with the audit procedure in order to fulfill the purpose of auditing.