Audit evidence consists of underlying accounting data and corroborating information.

Underlying
accounting data refers to the accounting • records underlying the financial statements. These include
books of accounts, related accounting manuals, worksheet supporting cost allocations and
reconciliations prepared by the client personnel.

Corroborating information supporting the underlying a accounting data obtained from client and other
sources. This includes documents such as invoices, bank statements, purchase orders, contracts, checks
and other information obtained or developed by the auditor through confirmation, recalculation,
observation and reconciliation.

Accounting data alone can not be considered sufficient evidence to support an opinion on the financial
statements. Accordingly, the auditor must obtain corroborative information to support his audit report.

r."

Qualities of evidence

Audit evidence is typically obtained as a result of performing tests of control and substantive tests. In
cases where controls cannot be relied upon, evidence may be obtained entirely from substantive tests.
When obtaining audit evidence from either tests of control or substantive tests, the auditor should
consider the sufficiency and appropriateness of audit evidence obtained. When performing tests of
control, audit evidence must support the assessed level of control risk. When performing substantive
tests, audit evidence must support the acceptable level of detection risk. At the conclusion of the audit,
the auditor should evaluate whether the

sufficiency and appropriateness of evideric'e. substantive tests and tests of control supports financial
statement assertions. Sufficiency refers to the amount of evidence that the auditor should accumulate.
Because of the cost/ benefit consideration the auditor does not examine all evidence available. The
auditor uses his judgment to determine the amount of evidence needed to support an opinion on the
financial statements. The following factors may be considered in evaluatin' g the sufficiency of evidence:

■ The competence of evidence

The amount of evidence that is sufficient in a given situation varies inversely with the competence of
evidence. Thus, the more competent the evidence, the less amount of evidence is needed to support
the auditor's opinion.

The materiality of the item being examined. •

The more material the financial statement amount being examined, the more evidence will be needed
to support its validity. Conversely, if the account is not material to the financial statements, the auditor
does not have to perform any procedure related to that account. The risk involved in a particular
account. As the risk of misstatement in a particular account increases, the more evidence will be
needed.

Experience gained during previous audit may indicate the amount of evidence taken before and
whether such evidence vas enough. Appropriateness isthe measure of the quality of audit evidence and
its relevance to a particular assertion and its reliability. Relevance relates the timeliness of evidence and
its ability to satisfy the audit objective. Reliability relates to the objectivity of evidence and is influenced
by its source and by its nature. While reliability of audit evidence is dependent on individual
circumstance, the following generalizations could help the auditor in assessing the reliability of audit
evidence:

■ Audit evidence obtained from independent outside sources_(for example, confirmation received from
a third party) is more reliable than that generated internally.

■ Audit evidence generated internally is more reliable when the related accounting and internal control
systems are effective. ■ Audit evidence obtained directly by the auditor is more reliable than that
obtained from the entity. ■ Audit evidence in the form of documents and written representations is
more reliable than oral representations.

FM

Cost/benefit consideration when obtaining evidence An auditor works within economic limits. The
auditor's- opinion to be economically useful must be formed wi a reasonable period of time and based
on evidence obtained at a reasonable cost. As a guiding rule, there should be a rational relationship
between the cost of obtaining evidence and the usefulness of the information obtained. The auditor
uses his professional judgment determining the appropriate type of evidence that should be obtained. •

Audit evidence does not have to be conclusive to be useful. Ordinarily, the auditor finds it necessary to
rely on audit evidence that is persuasive rather than conclusive in nature and will often seek audit
evidence from different sources or of a different nature to support the same assertion.

• AUDIT DOCUMENTATION/ WORKING PAPERS

The sufficient appropriate evidence required by the professional standards must be clearly documented
in the auditor's working papers. Working papers are records kept by the auditor that documents the
auditprocedures applied, information obtained and conclusions reached. PSA 230 requires the auditor
to document matters that are important to support an opinion on financial statements, and evidence
that the audit was conducted in accordance with PSA.
Functions of the working papers Working papers are prepared primarily to • Support the auditor's
opinion on financial statements.

■ Support the auditor's compliance with PSA. Assist the auditor in the review and supervision of

representation as to planning, performance, the g a eng ement

Secondarily, workingpapers also assist the auditor in ■ planning future audits. ■ providing information
useful in rendering other services (MAS or tax consultancy)

■ providing adequate defense in case of litigation.

Form, Content and Extent of Audit Documentation It is neither necessary nor practicable to document
every matter the auditor considers during the-audit. In deciding on the form, content and extent of audit
documentation, the auditor should consider what would enable an experienced auditor, having no
previous connection with the audit, to understand:

(a) The nature, timing, and extent of the audit procedures performed to comply with PSAs and
applicable legal and regulatory requirements; (b) The results of the audit procedures and the audit
evidence obtained; and (c) Significant matters arising during the audit and the conclusions reached
thereon.

The form, content and extent of audit documentation depend on factors such as: ▪ The nature of the
audit procedures to be performed; , ▪ The identified risks of material misstatement; • The extent of
judgment required in performing the work and evaluating the results; The significance of the audit
evidence obtained; • The nature and extent of exceptions identified;

The need to document a conclusion or the basis f a conclusion not readily determinable from t,_°'
documentation of the work performed or _ 'le evidence obtained; and . 411(14 tools used. The audit
methodology and

Although audit documentation depends upon the auditor, judgment, the following important items
would norinalisy require audit documentation: ■ Discussions of significant matters with management
and others on a timely basis. ■In exceptional circumstances, when the auditor judges it necessary to
depart from a basic principle or an essential procedure that is relevant in the circumstances of the audit,
the auditor should document how the alternative audit procedures performed achieve the objective of
the audit, and, unless otherwise clear, the reasons for the departure. ■ In documenting the nature,
timing and extent of audit procedures performed, the auditor should record: (a) Who performed the
audit work and the date such work was completed; and (b) Who reviewed the audit work performed
and the date, and extent of such review.

Classification of working papers &#.4

In a continuing engagement, working papers are typically classified into permanent file or current
working paper wa-A file:

(I) Permanent file contains information of continuing significance to the auditor in performing recurring
audits. This file would most likely include