INTRODUCTION -AN OVERVIEW OF AUDITING:

Economic decisions in every society must be based upon the information available at the time the decision is made. For example, the decision of a bank to make a loan to a business is based upon previous financial relationships with that business, the financial condition of the company as reflected by its financial statements and other factors.

If decisions are to be consistent with the intention of the decision makers, the information used in the decision process must be reliable. Unreliable information can cause inefficient use of resources to the detriment of the society and to the decision makers themselves. In the lending decision example, assume that the barfly makes the loan on the basis of misleading financial statements and the borrower Company is ultimately unable to repay. As a result the bank has lost both the principal and the interest. In addition, another company that could have used the funds effectively was deprived of the money. As society become more complex, there is an increased likelihood that unreliable information will be provided to decision makers. There are several reasons for this: remoteness of information, voluminous data and the existence of complex exchange transactionsAs a means of overcoming the problem of unreliable information, the decision-maker must develop a method of assuring him that the information is sufficiently reliable for these decisions. In doing this he must weigh the cost of obtaining more reliable information against the expected benefits. A common way to obtain such reliable information is to have some type of verification (audit) performed by independent persons. The audited information is then used in the decision making process on the assumption that it is reasonably complete, accurate and unbiased.

ORIGIN AND EVOLUTION

The term audit is derived from the Latin term 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

Auditing is as old as accounting. It was in use in all ancient countries such as Mesopotamia, Greece, Egypt. Rome, U.K. and India. The Vedas contain reference to accounts and auditing. Arthasashthra by Kautilya detailed rules for accounting and auditing of public finances.

The original objective of auditing was to detect and prevent errors and frauds

1)Auditing evolved and grew rapidly after the industrial revolution in the 18th century With the growth of the joint stock companies the ownership and management became separate. 2)The shareholders who were the owners needed a report from an independent expert on the accounts of the company managed by the board of directors who were the employees.

3)The objective of audit shifted and audit was expected to ascertain whether the accounts were true and fair rather than detection of errors and frauds.Reasons for Issuing Auditing Standard ASA 500 Audit EvidenceThe Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 500 Audit Evidence, due to the requirements of the legislative, provisions explained below.

The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 (the CLERP 9 Act) established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, as from 1 July 2004. Under section 336 of the Corporations Act 2001, the AUASB may make Auditing Standards for the purposes of the corporations legislation. These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.

Main Features

This Auditing Standard:- Provides explanatory guidance on what constitutes audit evidence; Requires the auditor to obtain sufficient appropriate evidence; Requires the auditor to use assertions in obtaining audit evidence; and Provides explanatory guidance on audit procedures for obtaining audit evidence.

standard of Auditing 500 was revised in 1.04.2009 by theInstitute of Chartered Accountants of India.Auditor needs to form an opinion after checking books of accounts. For the purpose of examining books auditor should obtain audit evidence to form a conclusion and to support his examination. As of the aim of reporting and forming conclusions on the financial statements different audit evidences are obtained by the auditor. Audit evidencehelps to draw reasonable audit conclusions.Audit evidence should be obtained for both accounting information contained in the financial statements and also for other information. Auditor may obtain an internal evidence for example when sales are made by the client to the customers, sales invoices are issued to the customer, which forms an internal evidence which are further evidenced by receipt of money from the customers. Other examples of internal evidences are material issued note, goods received note or any other evidence generated internally by the client. There can also be internal external evidences prepared by the clients and later on issued to their customers for further processing and payment. For example any invoice which is prepared internally and issued to the customer for further processing and payment. There can also be other evidences that are not generated by the client and obtained by the auditor directly from third party. For instance, auditor can obtain balance confirmation certificates from the third party , may be debtors balance confirmation , creditors balance confirmation and other such evidence obtained from the third party without dealing with the client. There can also be external internal evidence flowing from outside the clients organization into the clients organization, We can give here example of a purchase invoice.

Thus in brief, the evidence can be1. Internal Evidence2. Internal- External evidence3. External Evidence4. External internal evidence.

However, it is important to know that external evidence which is obtained by the third party directly from the third party is a more reliable audit evidence. The simple reason behind this is clients involvement is absent . hence, chances of manipulation in this type of evidence by the client is not there.

This Auditing Standard:provides explanatory guidance on what constitutes audit evidence;

requires the auditor to obtain sufficient appropriate evidence;

requires the auditor to use assertions in obtaining audit evidence; and

provides explanatory guidance on audit procedures for obtaining audit evidence. AUDITING STANDARD SA 500Audit EvidenceApplication

This Auditing Standard applies to:

an audit of a financial report for a financial year, or an audit of a financial report for a half-year, in accordance with Part2M.3 of the Corporations Act 2001; and

an audit of a financial report for any other purpose.

This Auditing Standard also applies, as appropriate, to an audit of other financial information.

Operative Date

This Auditing Standard is operative for financial reporting periods commencing on or after 1July2006.

IntroductionThe purpose of this Auditing Standard is to establish mandatory requirements and to provide explanatory guidance on what constitutes audit evidence in an audit of a financial report, the quantity and quality of audit evidence to be obtained, and the audit procedures that the auditor uses for obtaining that audit evidence.

The auditor shall obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditors opinion.

Concept of Audit Evidence

Audit evidence means all the information used by the auditor in arriving at the conclusions on which the auditors opinion is based, and includes the information contained in the accounting records underlying the financial report and other information. Auditors are not expected to address all information that may exist, see paragraph 18. Audit evidence, which is cumulative in nature, includes audit evidence obtained from audit procedures performed during the course of the audit and may include audit evidence obtained from other sources such as previous audits and a firms quality control procedures for client acceptance and continuance.

Accounting records generally include the records of initial entries and supporting records, such as cheques and records of electronic fund transfers, invoices, contracts, the general and subsidiary ledgers, journal entries and other adjustments to the financial report that are not reflected in formal journal entries, and records such as work sheets and spreadsheets supporting cost allocations, computations, reconciliations and disclosures. The entries in the accounting records are often initiated, recorded, processed and reported in electronic form. In addition, the accounting records may be part of integrated systems that share data and support all aspects of the entitys financial reporting, operations and compliance objectives.

Those charged with governance are responsible for the preparation of the financial report based upon the accounting records of the entity. Under paragraph 5 of this Auditing Standard, the auditor needs to obtain some audit evidence by testing the accounting records, for example, through analysis and review, reperforming procedures followed in the financial reporting process, and reconciling related types and applications of the same information. Through the performance of such audit procedures, the auditor may determine that the accounting records are internally consistent and agree to the financial report. However, because accounting records alone do not provide sufficient audit evidence on which to base an auditors opinion on the financial report, the auditor, under paragraph 5 of this standard, needs to obtain other audit evidence.

Other information that the auditor may use as audit evidence includes minutes of meetings, confirmations from third parties, analysts reports, comparable data about competitors (benchmarking), controls manuals, information obtained by the auditor from such audit procedures as enquiry, observation, and inspection, and other information developed by, or available to, the auditor that permits the auditor to reach conclusions through valid reasoning.

Sufficient Appropriate Audit Evidence

Sufficiency is the measure of the quantity of audit evidence. Appropriateness is the measure of the quality of audit evidence, that is, its relevance and its reliability in providing support for, or detecting misstatements in, the classes of transactions, account balances, and disclosures and related assertions. The quantity of audit evidence needed is affected by the risk of misstatement (the greater the risk, the more audit evidence is likely to be required) and also by the quality of such audit evidence (the higher the quality, the less may be required). Accordingly, the sufficiency and appropriateness of audit evidence are interrelated. However, merely obtaining more audit evidence may not compensate for its poor quality.

A given set of audit procedures may provide audit evidence that is relevant to certain assertions, but not others. For example, inspection of records and documents related to the collection of receivables after the period end may provide audit evidence regarding both existence and valuation, although not necessarily the appropriateness of period-end cut-offs. On the other hand, the auditor ordinarily obtains audit evidence from different sources or of a different nature that is relevant to the same assertion. For example, the auditor may analyse the ageing of accounts receivable and the subsequent collection of receivables to obtain audit evidence relating to the valuation of the allowance for doubtful accounts. Furthermore, obtaining audit evidence relating to a particular assertion, for example, the physical existence of inventory, is not a substitute for obtaining audit evidence regarding another assertion, for example, the valuation of inventory.

The reliability of audit evidence is influenced by its source and by its nature and is dependent on the individual circumstances under which it is obtained. Generalisations about the reliability of various kinds of audit evidence can be made, however, such generalisations are subject to important exceptions. Even when audit evidence is obtained from sources external to the entity, circumstances may exist that could affect the reliability of the information obtained. For example, audit evidence obtained from an independent external source may not be reliable if the source is not knowledgeable. While recognising that exceptions may exist, the following generalisations about the reliability of audit evidence may be useful:

Audit evidence is more reliable when it is obtained from independent sources outside the entity.

Audit evidence that is generated internally is more reliable when the related controls imposed by the entity are effective.

Audit evidence obtained directly by the auditor (for example, observation of the application of a control) is more reliable than audit evidence obtained indirectly or by inference (for example, enquiry about the application of a control).

Audit evidence is more reliable when it exists in documentary form, whether paper, electronic, or other medium (for example, a contemporaneously written record of a meeting is more reliable than a subsequent oral representation of the matters discussed).

Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles.

An audit rarely involves the authentication of documentation, nor is the auditor trained as or expected to be an expert in such authentication. However, under paragraph 5 of this Auditing Standard, the auditor needs to consider the reliability of the information to be used as audit evidence, for example, photocopies, facsimiles, filmed, digitised or other electronic documents, including consideration of controls over their preparation and maintenance where relevant.

When information produced by the entity is used by the auditor to perform audit procedures, the auditor shall obtain audit evidence about the accuracy and completeness of the information.

In order for the auditor to obtain reliable audit evidence, the information upon which the audit procedures are based needs to be sufficiently complete and accurate. For example, in auditing revenue by applying standard prices to records of sales volume, the auditor considers the accuracy of the price information and the completeness and accuracy of the sales volume data. Obtaining audit evidence about the completeness and accuracy of the information produced by the entitys information system may be performed concurrently with the actual audit procedure applied to the information when obtaining such audit evidence is an integral part of the audit procedure itself. In other situations, the auditor may have obtained audit evidence of the accuracy and completeness of such information by testing controls over the production and maintenance of the information. However, in some situations the auditor may determine that additional audit procedures are needed. For example, these additional audit procedures may include using computer-assisted audit techniques (CAATs) to recalculate the information.

The auditor ordinarily obtains more assurance from consistent audit evidence obtained from different sources or of a different nature than from items of audit evidence considered individually. In addition, obtaining audit evidence from different sources or of a different nature may indicate that an individual item of audit evidence is not reliable. For example, corroborating information obtained from a source independent of the entity may increase the assurance the auditor obtains from a management representation. Conversely, when audit evidence obtained from one source is inconsistent with that obtained from another, the auditor ordinarily determines what additional audit procedures are necessary to resolve the inconsistency.

The auditor ordinarily considers the relationship between the cost of obtaining audit evidence and the usefulness of the information obtained. However, the matter of difficulty or expense involved is not in itself a valid basis for omitting an audit procedure for which there is no alternative.

In forming the auditors opinion, the auditor does not examine all the information available because conclusions ordinarily can be reached by using sampling approaches and other means of selecting items for testing. Also, the auditor ordinarily finds it necessary to rely on audit evidence that is persuasive rather than conclusive, however, to obtain reasonable assurance, the auditor is not satisfied with audit evidence that is less than persuasive. The Use of Assertions in Obtaining Audit Evidence

Those charged with governance are responsible for the fair presentation of a financial report that reflects the nature and operations of the entity. In representing that the financial report gives a true and fair view (or is presented fairly, in all material respects) in accordance with the applicable financial reporting framework, those charged with governance and management implicitly or explicitly make assertions regarding the recognition, measurement, presentation and disclosure of the various elements of a financial report and related disclosures.

The auditor shall use assertions for classes of transactions, account balances, and presentation and disclosures in sufficient detail to form a basis for the assessment of risks of material misstatement and the design and performance of further audit procedures.

Under paragraph 20 of this Auditing Standard, the auditor needs to use assertions in assessing risks by considering the different types of potential misstatements that may occur, and thereby designing audit procedures that are responsive to the assessed risks. Other Auditing Standards, such as ASA 315 Understanding the Entity and Its Environment and Assessing the Risks of Material Misstatement, ASA 330 The Auditors Procedures in Response to Assessed Risks, ASA 501 Existence and Valuation of Inventory and ASA 505 External Confirmations, discuss specific situations where the auditor is required to obtain audit evidence at the assertion level.Assertions used by the auditor fall into the following categories:

Assertions about classes of transactions and events for the period under audit:

Occurrence - transactions and events that have been recorded have occurred and pertain to the entity.

Completeness - all transactions and events that should have been recorded have been recorded.

Accuracy - amounts and other data relating to recorded transactions and events have been recorded appropriately.

Cut-off - transactions and events have been recorded in the correct accounting period.

Classification - transactions and events have been recorded in the proper accounts.

Assertions about account balances at the period end:

Existence - assets, liabilities, and equity interests exist.

Rights and obligations - the entity holds or controls the rights to assets, and liabilities are the obligations of the entity.

Completeness - all assets, liabilities and equity interests that should have been recorded have been recorded.

Valuation and allocation - assets, liabilities, and equity interests are included in the financial report at appropriate amounts and any resulting valuation or allocation adjustments are appropriately recorded.

Assertions about presentation and disclosure:

Occurrence, rights and obligations - disclosed events, transactions, and other matters have occurred and pertain to the entity.

Completeness - all disclosures that should have been included in the financial report have been included.

Classification and understandability - financial information is appropriately presented and described, and disclosures are clearly expressed.

Accuracy and valuation - financial and other information are disclosed fairly and at appropriate amounts.

The auditor may use the assertions as described above or may express them differently provided all aspects described above have been covered. For example, the auditor may choose to combine the assertions about transactions and events with the assertions about account balances. As another example, there may not be a separate assertion related to cut-off of transactions and events when the occurrence and completeness assertions include appropriate consideration of recording transactions in the correct accounting period.Audit Procedures for Obtaining Audit Evidence

In accordance with paragraph 5 of this standard, the auditor is required to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditors opinion. Under ASA 315 and ASA 330, the auditor needs to perform audit procedures to:obtain an understanding of the entity and its environment, including its internal control, to assess the risks of material misstatement at the financial report and assertion levels (audit procedures performed for this purpose are referred to in the Auditing Standards as risk assessment procedures);

when necessary or when the auditor has determined to do so, test the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level (audit procedures performed for this purpose are referred to in the Auditing Standards as tests of controls); and detect material misstatements at the assertion level (audit procedures performed for this purpose are referred to in the Auditing Standards as substantive procedures and include tests of details of classes of transactions, account balances and disclosures, and substantive analytical procedures).

The auditor needs to perform risk assessment procedures to provide a satisfactory basis for the assessment of risks at the financial report and assertion levels. Risk assessment procedures by themselves do not provide sufficient appropriate audit evidence on which to base the auditors opinion, however, and are supplemented by further audit procedures in the form of tests of controls, when necessary, and substantive procedures.

Tests of controls are necessary in two circumstances. When the auditors risk assessment includes an expectation of the operating effectiveness of controls, under ASA 330, the auditor needs to test those controls to support the risk assessment. In addition, when substantive audit procedures alone do not provide sufficient appropriate audit evidence, under ASA 330, the auditor needs to perform tests of controls to obtain audit evidence about their operating effectiveness.

The auditor needs to plan and perform substantive audit procedures to be responsive to the related assessment of the risks of material misstatement, which includes the results of tests of controls, if any. The auditors risk assessment is judgemental, however, and may not be sufficiently precise to identify all risks of material misstatement. Further, there are inherent limitations to internal control, including the risk of management override, the possibility of human error and the effect of systems changes. Therefore, under ASA 330, the auditor needs to design and perform substantive audit procedures for material classes of transactions, account balances and disclosures to obtain sufficient appropriate audit evidence.

Under paragraph 5 of this Auditing Standard, the auditor needs to use one or more types of audit procedures described in paragraphs 31 to 43 below. These audit procedures, or combinations thereof, may be used as risk assessment procedures, tests of controls or substantive audit procedures, depending on the context in which they are applied by the auditor. In certain circumstances, audit evidence obtained from previous audits may provide audit evidence where the auditor, under ASA 330, has performed audit procedures to establish its continuing relevance.

The nature and timing of the audit procedures to be used may be affected by the fact that some of the accounting data and other information may be available only in electronic form or only at certain points or periods in time. Source documents, such as purchase orders, bills of lading, invoices, and cheques, may be replaced with electronic messages. For example, entities may use electronic commerce or image processing systems. In electronic commerce, the entity and its customers or suppliers use connected computers over a public network, such as the Internet, to transact business electronically. Purchase, shipping, billing, cash receipt, and cash disbursement transactions are often consummated entirely by the exchange of electronic messages between the parties. In image processing systems, documents are scanned and converted into electronic images to facilitate storage and reference, and the source documents may not be retained after conversion. Certain electronic information may exist at a certain point in time. However, such information may not be retrievable after a specified period of time if files are changed and if backup files do not exist. An entitys data retention policies may require the auditor to request retention of some information for the auditors review or to perform audit procedures at a time when the information is available.When the information is in electronic form, the auditor may carry out certain of the audit procedures described below through CAATs.Inspection of Records or Documents

Inspection consists of examining records or documents, whether internal or external, in paper form, electronic form, or other media. Inspection of records and documents provides audit evidence of varying degrees of reliability, depending on their nature and source and, in the case of internal records and documents, on the effectiveness of the controls over their production. An example of inspection used as a test of controls is inspection of records or documents for evidence of authorisation.

Some documents represent direct audit evidence of the existence of an asset, for example, a document constituting a financial instrument such as a stock or bond. Inspection of such documents may not necessarily provide audit evidence about ownership or value. In addition, inspecting an executed contract may provide audit evidence relevant to the entitys application of accounting policies, such as revenue recognition.

Inspection of Tangible Assets

Inspection of tangible assets consists of physical examination of the assets. Inspection of tangible assets may provide reliable audit evidence with respect to their existence, but not necessarily about the entitys rights and obligations or the valuation of the assets. Inspection of individual inventory items ordinarily accompanies the observation of inventory counting.

Observation

Observation consists of looking at a process or procedure being performed by others. Examples include observation of the counting of inventories by the entitys personnel and observation of the performance of control activities. Observation provides audit evidence about the performance of a process or procedure, but is limited to the point in time at which the observation takes place and by the fact that the act of being observed may affect how the process or procedure is performed. See ASA 501, for further mandatory requirements and explanatory guidance on observation of the counting of inventory.

Enquiry

Enquiry consists of seeking information of knowledgeable persons, both financial and non-financial, throughout the entity or outside the entity. Enquiry is an audit procedure that is used extensively throughout the audit and often is complementary to performing other audit procedures. Enquiries may range from formal written enquiries to informal oral enquiries. Evaluating responses to enquiries is an integral part of the enquiry process.

Responses to enquiries may provide the auditor with information not previously possessed or with corroborative audit evidence. Alternatively, responses might provide information that differs significantly from other information that the auditor has obtained, for example, information regarding the possibility of management override of controls. In some cases, responses to enquiries provide a basis for the auditor to modify or perform additional audit procedures.

Ordinarily, the auditor performs audit procedures in addition to the use of enquiry to obtain sufficient appropriate audit evidence. Enquiry alone ordinarily does not provide sufficient audit evidence to detect a material misstatement at the assertion level. Moreover, enquiry alone is not ordinarily sufficient to test the operating effectiveness of controls.

Although corroboration of evidence obtained through enquiry is often of particular importance, in the case of enquiries about management intent, the information available to support managements intent may be limited. In these cases, understanding managements past history of carrying out its stated intentions with respect to assets or liabilities, managements stated reasons for choosing a particular course of action, and managements ability to pursue a specific course of action may provide relevant information about managements intent.

In respect of some matters, the auditor obtains written representations from those charged with governance and management to confirm responses to oral enquiries. For example, the auditor obtains written representations from those charged with governance and/or management on material matters when other sufficient appropriate audit evidence cannot reasonably be expected to exist or when the other audit evidence obtained is of a lower quality. See ASA 580 Management Representations, for further mandatory requirements and explanatory guidance on written representations.

Confirmation

Confirmation, which is a specific type of enquiry, is the process of obtaining a representation of information or of an existing condition directly from a third party. For example, the auditor may seek direct confirmation of receivables by communication with debtors. Confirmations are frequently used in relation to account balances and their components, but need not be restricted to these items. For example, the auditor may request confirmation of the terms of agreements or transactions an entity has with third parties, the confirmation request is designed to ask if any modifications have been made to the agreement and, if so, what the relevant details are. Confirmations also are used to obtain audit evidence about the absence of certain conditions, for example, the absence of a side agreement that may influence revenue recognition. See ASA 505, for further mandatory requirements and explanatory guidance on confirmations.

Recalculation

Recalculation consists of checking the mathematical accuracy of documents or records. Recalculation can be performed through the use of information technology, for example, by obtaining an electronic file from the entity and using CAATs to check the accuracy of the summarisation of the file.

Reperformance

Reperformance is the auditors independent execution of procedures or controls that were originally performed as part of the entitys internal control, either manually or through the use of CAATs, for example, reperforming the ageing of accounts receivable.

Analytical Procedures

Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and non-financial data. Analytical procedures also encompass the investigation of identified fluctuations and relationships that are inconsistent with other relevant information or deviate significantly from predicted amounts. See ASA 520 Analytical Procedures, for further mandatory requirements and explanatory guidance on analytical procedures.

Conformity with International Standards on AuditingExcept as noted below, this Auditing Standard conforms with International Standard on Auditing ISA 500 Audit Evidence, issued by the International Auditing and Assurance Standards Board of the International Federation of Accountants. The main difference between this Auditing Standard and ISA 500 is that ISA 500 includes a Public Sector Perspective. This Auditing Standard does not include a separate section on the public sector as it is sector neutral.Compliance with this Auditing Standard enables compliance with ISA 500.Types of Audit Evidence based on the means of collection.

1.Inspection

Inspection is done by the auditor of books of accounts and other relevant records. Inspection can be done internally or externally and types of evidence may be in paper form , electronic form etc. Even auditor may prefer to do physical examination of an asset for getting conclusive view about the asset appearing in the balance sheet. In this case it is said to be more reliable audit evidence. Its reliability depends upon the nature and source of audit evidence. Auditor may inspect the information in the books of accounts and to obtain reasonable reliability of what is appearing in the books of accounts , auditor may cross check with other evidence and for in-depth examination and inspection decide to physical examine the asset.

2.observation

The auditor when watches the internal processes being performed within the organization of the client, it is said to be observation. It is the close verification of the processes performed by the client. We can take example of inventory counting in these case. Auditor observes the inventory counting performed by the client and forms his conclusion about the control activities performed. By observation auditor can know about the internal control in the organization is strong or weak. He can also check by observing authorization procedures whether it is done properly and genuinely or not by the management.

3.External confirmationTo check the genuineness of the transactions appearing in the books of accounts, auditor prefers to obtain external confirmation directly from the third party. It is always said that external evidence is more reliable than internal evidence because it is obtain externally without clients involvement and hence more reliable. We can take instance of balance confirmation in this case, for example debtors balance confirmation, creditors balance confirmation

Compliance and substantive audit procedures

Compliance procedures are the tests of internal control. This is for the purpose to check whether there is internal control operating within the organization, whether it is operating effectively or not, whether the operation throughout the period was effective or not.

Substantive evidence is about whether the evidence obtained is complete, accurate , valid as to the information produced by the accounting system.

Factors from which reliability of audit evidence is increased

1. Evidence if the source is from outside the entity.2. Internal evidence reliability increases when internal control is effective.3. External evidence is more reliable than internal evidence as of the absence of the involvement of the client.4. Written form evidence is more reliable5. If the audit evidence is obtained from original documents then they are more reliable rather than photocopies of it.

.

While using the work of Management expert, what care needs to be taken by the auditor?

1. Alternative sources of audit evidence available or not is to be checked.2. The nature, Complexity and risk of material misstatement involved should be kept in mind.3. the nature , scope and objective of the expert work should be verified.4. Management expert is from within or outside the organization should be checked because of the chances of biased opinion.5. Whether the work of the management expert is being influenced by the exercise of control by the management should be verified6. Whether Management expert follows technical performance standards or other professional and industry requirements should be checked.7. The nature and extent of control on the Management Experts work should be kept in mind.8. Previous experience if any with the management expert of the auditor should also be taken into consideration.9. knowledge and experience of the management expert should also be counted.

Requirements

Sufficient Appropriate Audit Evidence

1) The auditor shall design and perform audit procedures that are appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence. Information to Be Used as Audit Evidence

2) When designing and performing audit procedures, the auditor shall consider the relevance and reliability of the information to be used as audit evidence

3) When information to be used as audit evidence has been prepared using the work of a managements expert, the auditor shall, to the extent necessary, having regard to the significance of that experts work for the auditors purposes,:

(a) Evaluate the competence, capabilities and objectivity of that expert;

(b) Obtain an understanding of the work of that expert; and

(c) Evaluate the appropriateness of that experts work as audit evidence for the relevant assertion. 9. When using information produced by the entity, the auditor shall evaluate whether the information is sufficiently reliable for the auditors purposes, including as necessary in the circumstances:

(a) Obtaining audit evidence about the accuracy and completeness of theinformation

(b) Evaluating whether the information is sufficiently precise and detailed for

the auditors purposes.Selecting Items for Testing to Obtain Audit Evidence

4) When designing tests of controls and tests of details, the auditor shall determine means ofselecting items for testing that are effective in meeting thepurpose of the audit procedure. Inconsistency in, or Doubts over Reliability of, Audit Evidence

5) If:(a) audit evidence obtained from one source is inconsistent with that obtained from another; or

(b) the auditor has doubts over the reliability of information to be used as audit evidence,

The auditor shall determine what modifications or additions to audit proceduresare necessary to resolve the matter, and shall consider the effect of the matter, ifany, on other aspects of the audit.

Selecting Items for Testing to Obtain Audit Evidence 1) An effective test provides appropriate audit evidence to an extent that, taken with other audit evidence obtained or to be obtained, will be sufficient for the auditors purposes. In selecting items for testing, the auditor is required by paragraph 7 to determine the relevance and reliability of information to be used as audit evidence; the other aspect of effectiveness (sufficiency) is an important consideration in selecting items to test. The means available to the auditor for selecting items for testing are:

(a) Selecting all items (100% examination);

(b) Selecting specific items; and

(c) Audit sampling.

The application of any one or combination of these means may be appropriate depending on the particular circumstances, for example, the risks of material misstatement related to the assertion being tested, and the practicality and efficiency of the different means.

Selecting All Items

2) The auditor may decide that it will be most appropriate to examine the entire population of items that make up a class of transactions or account balance (or a stratum within that population). 100% examination is unlikely in the case of tests of controls; however, it is more common for tests of details. 100% examination may be appropriate when, for

example:

The population constitutes a small number of large value items;

There is a significant risk and other means do not provide sufficient appropriate audit evidence; or

The repetitive nature of a calculation or other process performed automatically by an information system makes a 100% examination cost effective. Selecting Specific Items The auditor may decide to select specific items from a population. In making this decision, factors that may be relevant include the auditors understanding of the entity, the assessed risks of material misstatement, and the characteristics of the population being tested. The judgmental selection of specific items is subject to non-sampling risk.

Sufficient Appropriate Audit Evidence 1) Audit evidence is necessary to support the auditors opinion and report. It is cumulative in nature and is primarily obtained from audit procedures performed during the course of the audit. It may, however, also include information obtained from other sources such as previous audits (provided the auditor has determinedwhether changes have occurred since the previous audit that may affect its relevance to the current audit)7 or a firms quality control procedures for client acceptance and continuance. In addition to other sources inside and outside the entity, the entitys accounting records are an important source of audit evidence.Also, information that may be used as audit evidence may have been prepared using the work of a managements expert. Audit evidence comprises both information that supports and corroborates managements assertions, and any information that contradicts such assertions. In addition, in some cases the absence of information (for example, managements refusal to provide arequested representation) is used by the auditor, and therefore, also constitutes audit evidence.

2) Most of the auditors work in forming the auditors opinion consists ofobtaining and evaluating audit evidence. Audit procedures to obtain audit evidence can include inspection, observation, confirmation, recalculation,reperformance and analytical procedures, often in some combination, in addition to inquiry. Although inquiry may provide important audit evidence, and may even produce evidence of a misstatement, inquiry alone ordinarily does not provide sufficient audit evidence of the absence of a material misstatement at the assertion level, nor of the operating effectiveness of controls.

3) As explained in SA 200,reasonable assurance is obtained when the auditor has obtained sufficient appropriate audit evidence to reduce audit risk (i.e., the risk that the auditor expresses an inappropriate opinion when the financial statements are materially misstated) to an acceptably low level.

4)The sufficiency and appropriateness of audit evidence are interrelated. Sufficiency is the measure of the quantity of audit evidence. The quantity of audit evidence needed is affected by the auditors assessment of the risks of misstatement (the higher the assessed risks, the more audit evidence is likely to be required) and also by the quality of such audit evidence (the higher thequality, the less may be required). Obtaining more audit evidence, however, maynot compensate for its poor quality..

Sources of Audit Evidence

1)Some audit evidence is obtained by performing audit procedures to test the accounting records, for example, through analysis and review, reperforming procedures followed in the financial reporting process, and reconciling related types and applications of the same information. Through the performance of such audit procedures, the auditor may determine that the accounting records are internally consistent and agree to the financial statements.

2) More assurance is ordinarily obtained from consistent audit evidence obtained from different sources or of a different nature than from items of audit evidence considered individually. For example, corroborating information obtained from a source independent of the entity may increase the assurance the auditor obtains from audit evidence that is generated internally, such as evidence existing within the accounting records, minutes of meetings, or a managementrepresentation.

3) Information from sources independent of the entity that the auditor may use as audit evidence may include confirmations from third parties, analysts reports, and comparable data about competitors (benchmarking data).Conclusion

Auditor for the purpose of performing audit and forming reasonable conclusion on the financial statement obtains audit evidence, which thus supports his conclusive opinion.INDEX

Sr.NoName of TopicPage No

1Introduction an Overview of Auditing1

2Origin and Evaluation2

3Reason for Issuing SA -5003-4

4Auditing Standard 5005-6

5Sufficient Appropriate Audit Evidence6-8

6Use of Audit Evidence9-10

7Audit Procedure for Obtaining Evidence11-12

8Inspection of Records and Documents13-14

9Confirmation15

10Compliance with Auditing Standard16

11Compliance and Substantive Procedures17

12Use of Auditing Standard18

13Requirements19

14Sources of Audit Evidence20-22

15Conclusion23

16Wipro Audit Report

24