SAS No. 04 Audit Evidence

Status

Revised by Auditing Standards Committee in Taiwan on 31 December, 1985.

Summary

“Audit evidence” is all the information used by the auditor in arriving at the conclusions on which the audit opinion is based, and includes the information contained in the accounting records underlying the financial statements and other information. Auditors are not expected to address all information that may exist.

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. The following generalizations about the reliability of audit evidence are useful:

• Audit evidence is more reliable when it is obtained from knowledgeable 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 is more reliable than audit evidence obtained indirectly or by inference.
• Audit evidence is more reliable when it exists in documentary form, whether paper, electronic, or other medium.
• Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles.

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

The auditor should 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.

The auditor obtains audit evidence to draw reasonable conclusions on which to base the audit opinion by performing 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 statement and assertion levels;
• 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; and
• Detect material misstatements at the assertion level.

The auditor uses one or more types of audit procedures below in order to obtain audit evidence. These audit procedures, or combinations thereof, may be used as risk assessment procedures, tests of controls or substantive procedures, depending on the context in which they are applied by the auditor.

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. Inspection of tangible assets may provide reliable audit evidence with respect to their existence, but not necessarily about the entity’s rights and obligations or the valuation of the assets.

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.

Inquiry is an audit procedure that is used extensively throughout the audit and often is complementary to performing other audit procedures. Inquiries may range from formal written inquiries to informal oral inquiries. Evaluating responses to inquiries is an integral part of the inquiry process.

Confirmation, which is a specific type of inquiry, is the process of obtaining a representation of information or of an existing condition directly from a third party. Confirmations are frequently used in relation to account balances and their components, but need not be restricted to these items.

Recalculation consists of checking the mathematical accuracy of documents or records.

Reperformance is the auditor’s independent execution of procedures or controls that were originally performed as part of the entity’s internal control.

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.

Effective date

This Statement is effective from 1 October, 1984.