ACCA AA Syllabus D. Audit Evidence - Quality and Quantity of Evidence - Notes ^{3 / 4}

Sufficient

• refers to the quantity of the audit evidence needed

Appropriate

• refers to the quality, relevance and reliability of the audit evidence

So how much is sufficient?

Well it depends on how risky the amount being audited is

1. You need enough to have reasonable assurance that the specific audit area is free from material misstatement

2. A high quantity of poor quality evidence does not mean its sufficient (or appropriate)

3. The auditor must consider both the relevance and the reliability of the evidence

4. Be careful though of over auditing. 

   Lots of high quality evidence on immaterial areas is a waste of resources

So is testing 75% of all records better than testing 25%

• Generally yes.. but be careful... think of the fact you may be over auditing and therefore wasting resources, particularly if the area is low risk and immaterial

• Also be careful that the sample is representative of the population

What is sufficient and appropriate?

1. It reflects appropriately the level of risk in that specific area

2. Evidence that is generated from external sources is more reliable than evidence gathered from internal records

3. Written evidence is more reliable than oral evidence

4. Auditor-generated evidence is much more reliable than evidence obtained indirectly

5. Where the audit firm concludes that tests of control can be relied upon, evidence from the client’s records is a reliable source of evidence

What is NOT ‘sufficient and appropriate’

• Invisible Evidence

  • Ticks on audit programmes that say a procedure has been done, but where there is no evidence of it

  • Audit programmes should contain a cross-reference to the tangible evidence on file.

• Management Representations ONLY

  • The use of management representations alone is not sufficient and appropriate audit evidence

  • It could constitute a limitation on the scope of an audit that might result in the wrong opinion being expressed

  • Management representations are, again, complementary evidence to other audit evidence in a relevant audit area

• Lead schedules

  • Eg The Investment Property lead schedule that reconciles the opening fair value to the closing fair value

  • Lead schedules should be cross-referenced to the audit evidence that supports the relevant figures/disclosures

• Redundant accounts

  Accounts and trial balances which have been superseded

  • Particularly where the audit firm is involved in the accounts preparation, these are not sufficient or appropriate audit evidence