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1052 Audit procedures for obtaining audit evidence
Auditors design detailed audit procedures to obtain sufficient appropriate audit evidence. Procedures can include inspection, observation, confirmation, recalculation, reperformance, and analytical procedures, often in some combination.
This section further explains
- audit procedures for obtaining audit evidence, and
- specific types of audit procedures.
CICA Assurance Standards
Performance Audit, Special Examination, and Other Assurance Engagements
Auditors shall design detailed audit programs, setting out the procedures that are appropriate to obtain sufficient appropriate audit evidence through the selected use of
- external confirmation
- analytical procedures
- inquiry [Nov-2011]
Audit programs shall be reviewed and approved before the start of the execution/examination phase. Any changes to an approved audit program shall be reviewed and approved on a timely basis. [Nov-2011]
Note: CAS 500—Audit Evidence, contains significant guidance explaining what constitutes audit evidence. It deals with the auditor's responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion. If not displayed, selected requirements and application guidance found in CAS 500 may be viewed by clicking the “more” feature displayed in the standards information above.
Audit procedures for obtaining audit evidence
The evidence-gathering process involves the following steps:
- designing the audit procedures or tests;
- carrying out the audit procedures or tests and/or gathering evidence;
- analyzing evidence and drawing conclusions, which may also involve evaluating performance against the audit criteria; and
- making decisions about whether additional information is required and can be obtained (go back to step 1) or whether sufficient appropriate evidence exists.
Audit procedures typically focus on the key risk areas identified through a risk analysis.
It is not unusual for audits to be redesigned during the examination stage as teams encounter unforeseen difficulties in gathering sufficient evidence of appropriate quality. Auditors have to be alert to any signs that the evidence-gathering process may not be achieving the level of assurance required for the audit assignment and take appropriate corrective action. If there are any potential amendments to the audit program, communicate these changes and raise any other issues, on a timely basis, with the senior members of the audit team. In instances where modifications did not take place before the start of field work, modify the audit steps as the work progresses, obtain approval for changes to audit programs, and include appropriate information on the nature, timing, and extent of steps to be performed.
See OAG Annual Audit 5011 for guidance on risk assessment and related activities.
See OAG Annual Audit 6051 for guidance on developing and executing a controls test plan and OAG Annual Audit 5035 for guidance on walk-through procedures.
See OAG Annual Audit 6056 for guidance on using audit evidence obtained in previous audits.
See OAG Annual Audit 7015 for guidance on appropriate timing for performance of audit procedures and using audit information obtained during an interim period.
See OAG Annual Audit 7031 for guidance on substantive analytics.
See OAG Annual Audit 7041 for guidance on tests of detail.
Inspection. Inspection of documents and records provides varying degrees of reliability, depending on the nature and source of the documents. Inspection of physical assets provides highly reliable evidence of existence and some indication of value (if it does not appear damaged or obsolete) but not necessarily of ownership or value.
Observation. Observation of the application of a client's or entity's policy or procedure provides assurance of that procedure at a given point in time, but not necessarily of its performance at other times during the year.
See OAG Annual Audit 7062 for guidance on observation of inventory counting.
External confirmation. Confirmation is a written request addressed to third parties.
See OAG Annual Audit 7050 for guidance on external confirmations.
Recalculation. Computation or recalculation provides a high level of assurance regarding arithmetical accuracy.
See OAG Annual Audit 7591 for guidance on use of computer-assisted audit techniques (CAATs).
Reperformance. Reperformance techniques may be performed manually or through the use of computer-assisted audit techniques (CAATs).
See OAG Annual Audit 6051 for guidance on testing controls without using CAATs.
See OAG Annual Audit 7591 for guidance on use of CAATs.
Analytical procedures are used throughout the audit process and are conducted for the following primary and secondary purposes:
- Risk assessment—to direct attention to higher risk areas in determining the nature, timing, and extent of audit procedures
- Substantive testing—to obtain audit evidence of accuracy or to identify potential misstatements/errors as a substitute for tests of details
- Overall conclusion—to assist in assessing the propriety of audit conclusions reached and in evaluating the overall opinion/report
- Understanding the business—to deepen our understanding of the entity
- Entity communications—to develop more meaningful entity communications through a deeper understanding of the relevant business and audit issues.
See OAG Annual Audit 5012 for guidance on use of risk assessment analytical procedures.
See OAG Annual Audit 7030 for guidance on use of substantive analytical procedures.
See OAG Annual Audit 9021 for guidance on use of overall conclusion analytical procedures.
Auditors use analysis at various stages of the audit for different purposes. They use preliminary analytical procedures when planning the audit to confirm the planned audit approach or to identify new risk areas that need to be addressed during the audit. At the reporting phase of the audit, auditors use analytical procedures to assess whether the opinion/report taken as a whole is reasonable and consistent with their knowledge of the subject matter and the expected results where applicable.
Inquiry is used throughout the engagement to
- obtain knowledge of the entity;
- develop the preliminary audit approach;
- collect specific evidence; and
- corroborate evidence collected by other means.
A solid understanding of the control environment is important in order to assess the extent to which inquiry will be effective in obtaining reliable evidence. For example, in an environment in which management's integrity and trustworthiness are high, the auditor may be able to place relatively more reliance on inquiry. A decision regarding the extent to which inquiry will provide sufficient, appropriate evidence is required.
- considering the knowledge, objectivity, experience, responsibility, and qualifications of the individual to be interviewed;
- asking clear and concise questions;
- using open or closed questions appropriately;
- listening actively and effectively; and
- considering the interviewee's responses and asking follow-up questions.
Inquiries can often be efficiently combined with other testing procedures such as observation and will frequently be followed up by further audit procedures to obtain sufficient appropriate evidence.
Inquiry is sometimes referred to as in-depth inquiry to emphasize that the technique is expected to be performed with rigour. Do not infer from seeing the word inquiry on its own that it means rigour is unnecessary.
See OAG Annual Audit 9052 for guidance on written representations.
Although inquiry has always been an integral part of audit, it is becoming an increasingly important method of collecting audit evidence due to the increasing use of “soft information” in financial statements. Specifically, soft information is based on estimates, expectations, and assumptions. In addition, more reliance is placed on management controls where little documentation may exist to support the existence of the review being performed and follow-up action taken when results are out of line with management expectations. In such cases, inquiry may be the primary (or only) source of evidence that the controls are in place and working effectively.