Aditing PDF
Aditing PDF
Aditing PDF
INTRODUCTION:
The term audit is derived from the Latin word ‘Audire’ which means to hear. In early days an auditor used
to listen to the accounts read over by an accountant in order to check them.
In India the Company’s Act 1913 made audit of company accounts compulsory. The International
Accounting Standards Committee & the Accounting Standard Board of the Institute of Chartered
Accountants of India have developed standard accounting & auditing practices to guide the accountants &
auditors in the day to day work.
The later developments in auditing pertain to the use of computers in accounting and auditing. & in
conclusion it can be said that auditing has come a long way from hearing of accounts to taking the help of
computers to examine computerised accounts.
MEANING & DEFINITIONS:
In olden days whenever the owners of the business suspect a fraud they
appointed certain person to check’ the accounts. Such persons used to call the accountant
and heard whatever they had to say in connection with the accounts.
To define audit in a word or two is by no means an easy task. Briefly audit is
the verification of accuracy and correctness of the books of accounts by independent
persons qualified for the job and not in any way connected with preparation of such
accounts.
1. Spicer and Pegler have defined an audit as “An audit may be said to be such an
examination of the books, accounts and vouchers of a business as will enable the auditor to
satisfy that the balance sheet is properly drawn up so as to give a true and fair view of the
state of the affairs of the business and whether the Profit and Loss a/c gives a true and fair
view of the profit or loss for the financial period according to the best of his information
and the explanations given to him and as shown by the books and if not in what respects he
is ‘not satisfied.’
2. According to Montgomery: “Auditing is a systematic examination of the books and
records of a business or other organization, in order to ascertain or verify and to
report upon the facts regarding its financial operation and the result thereof.”
3. According to R.B.Bose: “Audit may be said to be the verification of the accuracy and
correctness of the books of accounts by an independent person qualified for the job and
not in any way connected with the preparation of such accounts.”
Objectives of an audit:
Objectives of auditing may be classified as;
1. Primary or main objectives.
2. Secondary or subsidiary objectives.
c) Detection and prevention of frauds: Fraud means false representation or entry which
is made intentionally with some mischievous objectives i.e. to defraud somebody. It is
an intentional error. They are more serious than the unintentional errors because of the
implication of dishonesty which accompanies them.
Frauds may be committed in three ways. Namely:
1. Embezzlement of misappropriation of cash.
2. Misappropriation of goods
3. Fraudulent manipulation of accounts
1. Embezzlement or misappropriation of cash: misappropriation or defalcation of cash is a
very easy affair. Anybody with little skill on his part can misappropriate money
especially in a big business house where the contacts between the proprietor and the
person handling cash are not as close as in the case of a small proprietary business.
Usually cash is misappropriated by:
I. The theft of cash receipts
II. The theft of cheques
III. Payments made to fictitious creditors or workmen.
The following are some principal ways in which cash is misappropriated:
1. Omitted to record credit sales and misappropriation of money received from
the customers.
2. Making fictitious entries (creditors) from the discount, returns, bad debts etc in
the customer’s account to steal an equivalent cash receipts.
3. Teeming and lading: i.e. concealing money received from first customer and entering
in his account the cash received from second one and so on. This process continues till
the fraud is discovered. Thus misappropriation of cash is concealed by a false entry
relating to a later transaction.
4. Omitting to enter cash received from sales.
5. Misappropriating money received from the sale of goods on ‘sale or return’ basis or per
V.P.P by showing such goods as returned in the books.
6. Concealing cash received on miscellaneous or extraordinary a/c (e.g. from sale of
some rejected stock or from a debtor declared previously as bad debt etc.)
7. Recording fictitious purchases and misappropriating the cash involved.
8. Suppressing credit notes received from creditors for purchase returns and discount.
9. Misappropriating money receipt on bills receivable a/c discounted with a bank.
10. Misappropriating money shown as wages in the wages sheet either by entering
dummy names of workers or by over casting the sheet.
11. Omitting to record cash received by a cashier as a donation and removing
the counterfoil of the receipt from the receipt book.
2. Misappropriation of goods:The defalcation of goods is easy in those business
houses which produce or deal with goods which are less bulky and are of higher
value.
Thus goods can be misappropriated by –
(i) The actual theft of stock and
(ii) The issuing of fictitious credit notes to customers where there is collision of the
employee with the customer.
3. Fraudulent manipulation of accounts: The following are the objects behind this type
of fraud:
a. Showing more profits than the actual ones so as-
(ii) To earn more commission on profits if they get it on profit basis.
(iii) To win the confidence of the share holders by claiming that higher profits are the
result of their efficiency.
(iv)To fetch high price for their shares as high profits will lead to the declaration of
more dividends or
(v) To enjoy better reputation to get credit in the market by showing more sound
financial position than what it actually is or
(vi)To attract more persons to subscribe for the shares.
b. Showing less profits than the actual ones so as:
i. To purchase shares in the market at a lower price.
ii. To mislead income-tax authorities and to reduce or avoid the liability for income-tax or
iii. To deceive competitors by creating wrong impressions in their minds about the
success of the business.
CLASSIFICATION OF AUDIT
1. STATUTORY AUDIT
It refers to the audit of accounts of a business concern carried out compulsorily under the
provisions of statute or law. In case of many undertakings, audit is made compulsory under
statute. It is so because these undertakings are established by statute. Generally, the rules &
regulations for audit, appointment of auditors, their rights, duties, powers & responsibilities are
prescribed by the respective acts. The following are the examples of such an audit:
a. Company Audit. The audit of the accounts of joint-stock companies in India is compulsory
under the Companies Act. For the first time, the Indian Companies Act, 1913 made it
legally compulsory for joint-stock companies in India to get their accounts audited by an
independent professional accountant, but now, the Companies Act, 1956 and subsequent
amendments have made tremendous changes in the rights, duties, powers, etc., of an auditor.
He should be a qualified auditor as laid down under section 226 of the said Act.
ii. Audit of Trusts. Trusts are usually created for the benefit of the weak and helpless
persons like widows, minors, etc., who are not in a position to have access to and
understand the accounts of such trusts. The trustees are made responsible to look after the
property and to maintain accounts. They work according to the terms and conditions of the
Trust Deed, collect the income from such property and distribute it among the
beneficiaries.
iii. Audit of other Institutions. Then, besides joint-stock companies and trusts, there are other
corporate bodies, such as electricity and gas companies, banks and insurance companies,
and other corporate public bodies which have been formed under their respective statutes.
They have taken powers from the relevant Acts to appoint auditors and have recognized the
advantage of professional audit.
There is another set of public bodies in the name of public corporations, e.g., Reserve Bank of
India, Industrial Finance Corporation, etc., which work according to the various Acts passed
for the purpose.
Similarly, the audit of co-operative societies is conducted by the Co-operative Department of the
State Government or by Registrar of Co-operative Societies as the case may be.
Features of Statutory Audit:
3. INTERNAL AUDIT
Internal audit is the audit of the accounting, financial & other operations of a business concern
which is carried out by its own staff, specially appointed for the purpose. In short, internal audit
is the examination of books of accounts which is conducted by the salaried officials of a
business known as internal auditors throughout the year.
However, it is to be noted that the audit of accounts by internal auditors is not compulsory and it
is not essential under Statute. It is purely a matter of organizational behaviour to appoint
internal auditors for management to ensure smooth running of the business.
Such auditors are known as internal auditors who, besides checking the accounts, are required to
report also as to how the system of accounting can be improved and the system of the internal
check be made economical and efficient. Such auditors cannot be appointed as public auditors or
external auditors. They are not required to submit their reports in the manner in which external
auditors do.
Features of Internal Audit: (Importance)
a) It is undertaken by the concerns which is large in size.
b) It is purely optional or voluntary.
c) Conducted by the staff or employees of the concern.
d) Carried on continuously throught the year.
e) It helps in detection & prevention of errors & frauds.
f) May be addition to independent (external) audit.
g) The scope of internal audit vary depending upon the nature & size of the concern.
h) It is also closely related to the managerial functions than to the accounting duties.
CONTINUOUS AUDIT:
“A continuous audit is one where the auditor’s staff is occupied continuously on the accounts the
whole year round, or where the auditor attends at intervals, fixed or otherwise, during the
currency of the financial year, and performs an interim audit: such audits are adopted where the
work involved is considerable, and have many points in their favour, although they are subject to
certain disadvantages.” —Spicer and Pegler
“A continuous audit is one where the auditor or his staff is constantly engaged in checking the
accounts during the whole period or where the auditor or his staff attends at regular or irregular
intervals during the period.” —R.C. Williams
A continuous audit is an audit which involves the conducting of audit of accounts throughout
the year at regular intervals, fixed or otherwise, say, one month or more months. Such an audit
is necessary only for big business houses and not for small ones where accounts can be audited
at the close of the financial year when they are ready.
Advantages of Auditing
1. It ensures the correctness of the accounts:
The truth and fairness of the financial statements are certified which helps a lot to the
proprietors, management or anybody who deals with a particular concern. The reliability
of the accounts and financial statements, thus, is increased.
2. It enables the detection and prevention of errors and frauds:
Auditing enables to detect and prevent errors and frauds. It serves not only as a
corrective measure but exercises a great moral influence on the whole staff putting a
check upon dishonest employees.
3. It makes the staff alert and vigilant:
A regular audit makes the staff of the concern alert and vigilant and the books of
accounts and all other records are kept up to date. Thus, it prevents the application of
wrong principles and methods in accountancy, as well as carelessness and irregularity on
the part of the members of the staff.
4. It enables the comparison of accounts:
The audited accounts enable the comparison of accounts from year to year and thus the
fluctuations, if any may be accounted for. Moreover, through such comparison and
analysis, the management possess the facts upon which they may reasonably base their
decision for framing future policy for the benefit of the concern.
5. Helpful in obtaining additional capital and borrowing money:
The audited accounts are helpful in obtaining additional capital or borrowing money
from the banks or other sources. Unaudited accounts may not be attended to by the banks
etc. for the purpose of security and verification of financial position of the borrowing
concern.
6. Help to claim Insurance compensation:
In case of loss by fire, the compensation may be claimed from the insurance company
on the basis of the previous audited accounts. The estimates for the claim must be
scientific and based on reliable past records
7. Helps in the valuation of property and goodwill (purchase consideration):
When the business has to be sold out or a firm has to be converted into a joint stock
company, the audited accountswill help in the valuation of the property or goodwill of the
concern. It will be done arbitrarily if the accounts are not reliable.
8. Reliable for Tax authorities:
The audited accounts are taken to be more reliable by the tax authorities for purposes
of tax assessment.
9. Helpful to third parties for dealing with the company:
The third parties, who have dealings with a particular concern or is interested in its profit
or its financial soundness, would be helped a lot by the accounts of the concern if they
are audited and duly certified by an independent auditor.
10. Helpful in the settlement of accounts :
In a partnership firm, the audited accounts are more helpful in the settlement of accounts
between the partners amicably and thus avoiding any dispute amongst them. It will be of
greatuse at the time of a division of profits amongst the partners, admission of a new
partner, settlement of accounts in case of retirement or death of a partner.
11. Offer expert advice:
An auditor may be consulted by the management, whenever needed and he may offer
expert advice to improve the accounting, financial as well as other set up of the
concern although he may not be compelled to do so as it is not a part of his duties.
12. Instils confidence in the minds of Investors:
Auditing instils confidence in the minds of large number of investors and others in the
various business organizations, specially in a Joint Stock Company, simply by
bringing all the facts to light and thus ensuring whether capital invested is safe or not,
13. Reliable as evidence:
Audited accounts are more reliable as evidence in the court of law.
14. Continued Solvency:
Audit is, undoubtedly, a great aid to the continued solvency Taylor and Perry
rightly pointed out that 'In as much as t average business men has a tendency to
overrate his assets an take a too optimistic view of his liabilities, an audit is a great
aid towards continued solvency',
Limitations of auditing:
1. Want of complete picture: The audit may not give complete picture. If the accounts
are prepared with the intention to defraud others, auditor may not be able to detect
them.
2. Problem of dependence: Sometimes the auditor has to depend on explanations,
clarifications & information from staff & the client. He may or may not get correct
or complete information.
3. Post-mortem examination: It is post-mortem examination. It begins where account
ends. There is no use of such examination when events have already been occurred.
4. Existence of errors in audited accounts: It is not possible or the auditor in all cases to
check each & every transactions of an organization. As a result, there may be errorin
the audited accounts even after the checking by the auditor.
5. Lack of expertise: He has to seek opinion of experts such as engineers, architects,
valuers etc. on certain matters on which he may not have expert knowledge. The auditor
has to depend upon such reports which may not always be correct.
6. Diversified situations: Auditing I considered to be a mechanical work. Auditor may
not be in a position to frame audit programme (plan of action) which can be followed in
all situations.
7. Quality of the auditor: Success of audit depend on the sincerity with which the auditor
has performed his duties. The same audit work can be done by two different auditors
with difference in sincerity.
8. Often, the audit work is undertaken by auditor in a biased way & he is not able to
remain independent in practice even though he wants to remain so.
9. Auditing is expensive especially for the small business concerns.
10. Auditing causes inconvenience to the staff of the client.
AUDIT DOCUMENTATION:
Audit documentation refers to the written records and materials that auditors create and
maintain during the course of an audit engagement. These documents serve several important
purposes in the auditing process. It is the principal record of auditing procedures applied,
evidence obtained, and conclusions reached by the auditor in the engagement. Audit
documentation provides evidence of the work performed by auditors. It includes information
on the procedures conducted, the evidence obtained, and the conclusions reached.
AUDIT WORKING PAPERS:
Audit working papers are those papers and documents which consists of derails about accounts
which are under audit. The auditor notes down certain important facts and details about
accounts in these papers. The objects of an audit’s working papers are to control the current
year’s audit and to provide a base for the audit of the following year.
It aims at providing detailed information about the accounts and business of the client. It is
prepared and obtained by the auditor and retained by him, in connection with the performance
of his audit. Audit working papers are the property of the auditor they are used to support the
audit work done to assure that the audit was performed under relevant auditing standards.
Keyfeatures/Essentials of Audit working papers:
1. Completeness: They should contain all necessary information so that they may be
of maximum use.
2. Proper organization and arrangement: One may not experience any difficulty In locating
a particular matter.
3. Proper layout: There should be a proper design and layout. This would bring
uniformity into the maintenance of working papers.
4. Accuracy: They must contain accurate information so that they will be depended
upon by anyone who goes through it.
5. Clarity: They should contain Self-explanatory facts.
6. Readily apparent: The facts given in the working papers should be readily apparent to
the reader.
7. Relevance: The relevant particulars should always be kept in the working papers.
8. Filing and preservation: The audit working papers should be properly preserved and
filled.
9. Good quality paper: The paper used for the preparation of working papers should be
of better quality and uniform size as such papers are maintained by the auditor for a
comparatively longer period.
10. Space for noting down important matters: Sufficient space should be left after each
note so that any remarks or decisions taken by the auditor may be written in that
space.
AUDIT NOTE BOOK:
A Note book which is prepared by the audit staff to note down all the unclear queries which he
may find in the course of audit and requires further explanation is known as audit notebook. It
contains information regarding day-to-day work performed by the audit staff on any particular
date. Notes about all types of errors, difficulties, and unclear queries or points to be discussed
with the auditor or clients and the points which are to be incorporated in the report
Contents of an Audit Note-Book
The audit note book should be in two parts:
● For keeping record of general information as regards audit as a whole
● For recording special points as may have been observed during the course of audit of
the accounts of different years.
General Information:
1. The nature of the business carried on as well as important provisions affecting the
functioning which are contained in a various documents relating to the constitution of
the business such as memorandum and articles of associations, partnership deed etc.
2. Structure of the financial and administrative organisation.
3. A list of books of accounts.
4. Names of principal officers, their duties and responsibilities
5. Particulars of the system of a/cs and those of internal check which are in operation.
6. Particulars of the a/cing and financial policies followed.
7. Important contracts to which the client is a party such as collaboration contracts,
royalty contracts etc.
8. Names of officials who certify bad debts, depreciation, etc;
Special points
1. Special audit queries not cleared immediately. E.g: missing receipts, vouchers etc.
2. The mistakes or irregularities observed during the course of audit. E.g: cases of failure
to comply with the requirements of the company’s act or the provisions contained in the
memorandum or article a change in the basis of valuation of stock or failure to provide
adequate depreciation etc.
3. Unsatisfactory book keeping arrangements costing methods internal or
financial administration or organisation
4. Important information about the company which is not apparent (evident) from
the accounts.
5. Special points requiring consideration at the time of verification of final a/cs.
6. Important matters for future reference
AUDIT PROGRAMME
An audit programme is the auditor’s plan of action. It presents an outline of procedures to be
followed to support an opinion on the financial statements. The primary basis of preparing an
audit programme is the system of internal check or control and since no two internal control
systems can be exactly alike, an audit programme will also vary among clients and business
firms. An auditor, therefore, will have to keep in mind a basic programme which he would
modify to fit the special circumstances of each case. Modifications to the basic plan of action are
based on the weaknesses inherent in the system of internal check or control prevailing in a
particular business.
According to Prof. Meigs - “An audit programme is a detailed plan of the audit work to be
performed, speci1lng the procedures to be followed in verification of each Item in the financial
statements and giving the estimated time required.”
An audit programme is a written scheme prepared by the auditor to distribute work to be
followed during audit. The preparation of such a programme involves mainly three things:
a) How much work is to be done?
b) Who is going to do a particular portion of the work?
c) What is the duration of time by which the work is to be finished?
Advantages of audit Programme
1. Ensures performance of the task: It ensures that all necessary work has been done and
nothing has been omitted. The work of audit can be completed in time quite
methodically and efficiently.
2. Progress of work: The audit programme after completion of work becomes a sort of
progress chart and the auditor can easily find out that the work has been completed as
per his plan and with its help, he can confidently proceed to sign the final audit report.
3. Uniformity: The work of audit can be done smoothly with uniformity and the auditor
can proceed well with the same set programme in subsequent audits.
4. Acts as evidence: In case charges of negligence are made against the auditor, an audit
programme serves as evidence or work carried out by the auditor.
5. Acts as guidance: Audit programme is a kind of guidance to the audit clerks for the
work they have to perform.
6. Resuming of work:In case a clerk goes on leave, the portion of the work where he
has left can easily be located and assigned to another clerk.
7. Fixing responsibility: Audit programme is prepared to locate exactly the responsibility
of every clerk in the auditor’s staff. In case of any fraud or an error remains undetected
the responsibility for negligence can be fixed on the clerk who had performed that
work as his initials are put on the audit programme.
8. Facilitates Final review: Before signing the report, it is easily possible for the auditor
to have the final review of the work done by him. At this stage, it may be explored
whether everything has been completed or not.
9. Plan of action for subsequent years: It provides a clue to prepare a plan of action
for the years to come.
10. Increases the efficiency: It increases the efficiency of his staff as In that case,
possibility of errors and negligence is minimized.
Disadvantages of Audit Programme
1. Lack of opportunity – The clerks do not get sufficient opportunity to how their
intelligence and initiative as they have to proceed in accordance with the programme
already set for them.They are not in a position to make any suggestion even if they
think it is necessary.
2. Mechanical - A written audit programme leaves no scope for creativity on the part of
the staff carrying it out with the result that audit work more often became mechanical in
nature.
3. Rigidity: As the requirements of every company vary a different audit programme
is needed for different companies and a uniform audit programme may not suit all
the companies.
4. Concealing weakness: Inefficient audit staff may try to hide their incompetence behind
rigid/fixed audit programme giving plea that no specific instructions were issued to
them.
5. Adoption of new techniques: In an ever changing dynamic environment,
constant amendments and updating are required in audit programme every year to
meet the changing needs of client companies.
6. Unsuitable for small firms: for small business houses, it would not be necessary
to prepare a programme as they cannot have the advantages of it.
AUDIT STRATEGY:
Audit strategy refers to the overall plan and approach that an auditor or audit team develops to
conduct an audit effectively and efficiently. It is a critical element in the audit process and helps
guide auditors in achieving the objectives of the audit, which typically include providing an
independent and objective assessment of an organization's financial statements, internal
controls, compliance with regulations, or other specified audit objectives.
An audit strategy outlines how an audit must be conducted and sets the timing and scope of
audits. It helps develop an audit plan comprising detailed responses to an auditor’s risk
evaluation. Moreover, it enables audit firms to complete their audit engagement efficiently and
effectively.
AUDIT ENGAGEMENT:
An audit engagement refers to the professional service provided by an audit firm or auditor to
examine and evaluate the financial statements and related information of an entity, such as a
company, government agency, or nonprofit organization. The primary objective of an audit
engagement is to express an opinion on the fairness and accuracy of the financial statements,
ensuring that they present a true and fair view of the entity's financial position and
performance. It is an independent and systematic examination of a company’s financial
records, systems, and controls by a qualified professional.
Purpose of Audit Engagement:
1. Assurance: The primary purpose of an audit is to provide assurance to stakeholders, such
as shareholders, investors, creditors, and the public, that the financial statements prepared
by the company are accurate and fairly represent the company's financial position, results
of operations, and cash flow.
2. Compliance: Audits ensure that the entity is in compliance with applicable accounting
standards, laws, regulations, and industry-specific guidelines. This is essential for
maintaining legal and regulatory compliance.
3. Detection of Errors and Fraud: Auditors are responsible for detecting material
misstatements, errors, or fraud in the financial statements. While audits are not specifically
designed to detect fraud, they can uncover fraudulent activities or irregularities during the
course of their examination.
4. Improvement of Internal Controls: Through the audit process, weaknesses in internal
controls can be identified. These weaknesses can then be addressed and strengthened to
reduce the risk of errors and fraud in the future.
5. Decision-Making: Audited financial statements are used by various stakeholders, including
investors, creditors, and management, to make informed decisions about 9 the entity.
Having confidence in the accuracy of the financial statements is crucial for these decision-
makers.
6. Risk Assessment: Auditors assess the financial risks associated with the entity's operations
and financial reporting. This helps stakeholders understand the level of risk they are
exposed to when dealing with the entity.
7. Stakeholder Accountability: Auditors provide an independent assessment of the entity's
financial performance and integrity. This can hold management and the board of
directors accountable for their stewardship of the organization's resources.
8. Financial Reporting Quality: The audit process can lead to improvements in the quality
of financial reporting, as it encourages entities to maintain accurate records and adopt
best practices in financial reporting.
9. Trust and Credibility: An audited financial statement carries more credibility and trust in
the eyes of stakeholders than unaudited ones. This can be especially important for publicly
traded companies and organizations seeking external financing.
10. Legal Requirements: In many jurisdictions, certain types of entities are legally required to
undergo an annual audit, such as publicly traded companies, financial institutions, and
government agencies. The purpose here is to ensure compliance with statutory
obligations.
Contents of Audit Engagement Letter:
1. The objective of the audit of financial statements
2. Management responsibility for the financial statements.
3. Management responsibility for selection of appropriate accounting policies,
implementation of applicable accounting standards, explanation for material departure
from those accounting standards.
4. Management responsibility for preparing the accounts on a going concern basis.
5. Management responsibility for making judgements and estimates for true and fair
compilation of financial statements.
6. Management responsibility for maintenance of adequate accounting records and internal
control
7. The fact that certain material misstatement resulting from fraud may remain undetected
even after the audit in view of inherent limitations of the audit.
8. The right of unrestricted access to records and information needed by auditor for
conducting audit.
9. The fact that the audit process may be subject to peer review under the Chartered
Accountant Act, 1949.
Besides these audit engagement letter may also include:
● Arrangement regarding planning of the audit.
● Expectation from the management of receiving written confirmation concerning
representation made in connection with the audit.
● Basis on which the fees for audit is to be computed and billing arrangements
● Request for the client to acknowledge the duplicate copy of engagement letter as a
token of his acceptance to the terms set therein.
● Arrangement for involvement of other experts, auditors, internal auditors etc. where
deemed necessary for the audit.
● Arrangement for any reference or otherwise with the predecessor auditors where the
engagement is a new one.
● Any restriction to the auditor’s liability, if it could be and is restricted.
AUDIT EVIDENCE:
Audit evidence refers to the information and documentation that auditors gather and evaluate
during an audit to support their findings and conclusions about a company's financial
statements and internal controls.
Auditors use this evidence to assess the accuracy, completeness, and reliability of the financial
information presented by the audited entity. The primary purpose of gathering audit evidence
is to provide assurance to stakeholders, such as shareholders, creditors, and regulators, that
the financial statements are free from material misstatement and are in compliance with
relevant accounting standards and regulations.
Factors considered or criteria for selecting audit Evidence.
1. Nature of the Audit Objective: The specific audit objective and the risks associated with it
influence the type of evidence needed. Auditors tailor their procedures to address these
objectives.
2. Source and Origin of Evidence: The source of the evidence matters. Evidence from
independent, external sources is generally more reliable than evidence from the auditee's
records.
3. Relevance: The evidence must be directly related to the audit objective and provide
information that is material to the financial statements or the subject being audited.
4. Reliability: Auditors assess the reliability of evidence. Reliable evidence is
accurate, unbiased, and obtained from a trustworthy source.
5. Internal Controls: The effectiveness of the auditee's internal controls may influence the
extent and nature of audit procedures. Strong internal controls may reduce the need
for extensive substantive testing and evidence.
6. Timing: The timing of when evidence is collected can impact its relevance. Auditors may
consider whether evidence is obtained at or near the balance sheet date or throughout
the year.
7. Cost-Benefit Analysis: Auditors weigh the cost of obtaining evidence against the expected
benefits. They aim to achieve audit objectives efficiently.
WRITTEN REPRESENTATION:
In auditing, a written representation is a statement or assertion made by management to the
auditor in written form. These representations are an essential part of the audit process as they
provide additional evidence regarding the financial statements and related matters. The
purpose of written representations is to confirm certain information, facts, or assertions that
are relevant to the audit.
Written representations are statements made by client management, confirming certain topics
or supporting audit Evidence. These representations are needed by the auditor as supporting
evidence in an audit engagement, since management acknowledges its responsibility in certain
areas and attests to various issues.