The aim of this paper is to show how important audit evidence is, the characteristics of its quality and the judgment of professionals that they use to measure audit evidence and to reflect their audit opinion. Professional judgment is the thing that sets up the quality of audit evidence regarding the technical standards of audit upon the auditor’s ethics. In this study we are going to see also auditors report, sufficiency and reliability of audit report.
Auditing could be a structured method of objectively getting and determining evidence concerning assertions about actions and events of economy. To give assurance for the financial statements, auditors obtain assertions from the managers, but this assertion cannot be trustful reliable and the auditors collects evidence for confirming that the information from management is correct.
Audit evidence is data collected from the auditor ended up in the conclusions on which opinion of auditors is based. Auditors should not take into consideration all the data that is provided from the companies. In the audit evidence it covers written and electronic material that allows the auditor through reasoning to achieve results. Audit evidence helps auditors deciding the beginning stage where the auditor represent its opinion of the company being audited on the financial operations. Evidence like this, is acquired starting with tests that focus how great accounting controls fill in.
Audit report is the opinion expressed from auditors from facts also from equity of company’s fiscal explanations. Financial statements of companies should have an understandable opinion in the auditors’ reports, derived from the conclusion of evidence received from the audit. The opinion expressed from the auditors should be supported from audit evidence in the report and the auditor should represent how has reached its opinion. International standard says: “The objective of the auditor is to design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.”
From this we can get two important things, the first one is that evidence must be ‘sufficient’, the size of quantity of audit evidence, and ‘appropriateness’ the size of quality of evidence.
Relevance and reliability, in the appropriateness, are supporting the results where auditors base their opinion. Relevance is the relation to target of the adjustment and rely on the timing and plan of the audit procedure. The type and source of audit evidence sets the reliability of evidence. An example for reliability, more reliable is the evidence received directly than indirectly from the auditor. Another example is, evidence is more reliable when the documents are original and not photocopies.
To construct their opinion, auditors don’t take into consideration all the data cause the outcomes might be taken from observation and other selecting items. In addition, it is very important to be based on in the audit evidence that it is continuous better than definitive to get eligible certainty. To evaluate the quantity and quality of audit evidence, auditors should apply professional judgment and scepticism. The responsibility of management is to represent fair financial statements of the entity. Management makes assertions considering the knowledge, evaluation, presentation, and findings of data in the financial statements.
The categories of assertions that auditors use is about:
1- The group of transactions and cases for the time under audit:
– Occurrence: cases and transaction that have happen in the entity.
– Completeness: the recorded transaction and cases that should have been enrol in the entity
– Accuracy: All the data and information that have been enrol relevant
– Cut off: transaction and cases have been enrolled in the appropriate time of accounting.
– Classification: Cases and transaction enrolled in the appropriate accounts.
2- Account balances at the end of the period
– Existence: Liabilities, assets and equity interest take place
– Obligations and Right: The company controls the rights to assets and liabilities are the charges of the entity.
– Completeness: the recorded transaction and cases that should have been enrol in the entity
– Valuation and allocation: Liabilities, assets and equity interests are covered in financial statements at the right amounts.
3- Presentation and findings
– Occurrence and obligations and right. Events that have happened in the company
– Completeness: the findings that ought to be concerned within the financial statements are concerned
– Classification and understandability: data of financials is showed in an appropriate way and all other information are clearly described
– Accuracy and valuation: all the data is detected truthfully and at the right sizes.
Auditors use the relevant assertions as they are or can express them in different aspects. He can choose to combine the assertions about transactions and events or about balances.
As a second case there cannot be particular affirmation identified with cut off of exchanges and occasions at the time the event and fulfilment statements incorporate proper thought of recording exchanges in the right suitable thought of recording exchanges in the right accounting time frame. Auditors use appropriate assertions for groups of transactions, accounts balance to create a base for the risk assessment of material misstatement. To assess risk from diverse types of misstatements that may happen, auditors usually use suitable assertions. Significant assertions are statements that possess a major concerning whether or not the account within reason expressed. For illustration, valuation might not be relevant to cash account unless money interpretation is included; but, existence and completeness are ceaselessly pertinent. So also, valuation might not be vital to net sum of receivables however has relevancy to the connected regular payment accounts. In some conditions, auditors target the introduction assertion severally in reference to the ending of the time financial reporting procedure.
To recognize significant assertions, the auditor ought to set up the supply of misstatements in every vital cluster transactions, account balance, introduction and revelation. In deciding whether or not a particular assertion is important to associate account balance or revelation, the auditor ought to assess three things, firstly the type of the assertion, secondly the size of information connected to assertion, and the last one is the type and difficulty of frameworks, counting the usage of technological data, that entity forms and reviews data sustaining the assertion.
Procedures of Audit for getting Audit evidence
The auditor got to get audit evidence to indicate smart outcomes on that to refer the judgments of audit by including off audit strategies to:
a. to induce a meaning of the entity, containing its within management, to gauge the risks of material errors in financial statements and important assertions
b. once necessary, or once the auditor has determined to try to do therefore, take a look at the operational effectiveness of controls in preventing material misstatements at the relevant assertion level
c. discover material misstatements at the vital assertion level
The auditor should accomplish risk assessment methods to provide an appropriate basis for the analysis of risks at the financial statement and crucial assertions. Risk assessment orders do not offer adequate appropriate audit evidence on that to create the audit opinion and ought to be consummated by additional audit strategies among the form of tests of controls, once necessary or elementary, and substantive methods.
Auditors to test inside controls or assess the processes of business usually apply evidence to assist the assertions.
The basic objective of audit strategies is to recognize and gather audit evidence, data utilized to set up and back up audit discoveries, proposals, and opinions. Depending on the sort and center of the audit being performed, there are different sorts of evidence that will be accessible and collected. The auditor must utilize their proficient judgment when collecting and evaluating evidence, that shows that for a professional auditor objectivity and independence is important.
Below I will illustrate the types of audit evidence:
1. Physical examination- while conducting the audit, auditor overlook and verify the subsistence of assets. Testing assets that are physical, like inventory, the most beneficial evidence is physical inventory. The auditor is receiving a strong evidence from this type, physical examination, when he goes to the storehouse and verify the inventory is correct.
2. Observation- This type of audit evidence looks at a stage or process that has been done from the others. Some example of this evidence includes the observation of counted inventories from the personnel of entity, and observation of efficiency of management activities. It ensures audit evidence for the accomplishment of a procedure; however, it’s restricted to purpose within the amount that observation happens.
3. Inquiry- This type of evidence consists information of professional persons. It is an audit process which might be used during the audit and it is supplementary to perform different audit processes. Inquiries might be formal written and informal oral. Inquiry includes:
– Taking into consideration the knowledge, experience and background information of the person that will be questioned
– To ask the relevant and right questions
– To use adequately closed or opened questions
– Listening carefully
– Taking into account responses and inquiring follow-up questions.
– And the last one is, assessing the response
4. Confirmation- it is a special type of the previous type, inquiry, is a method to receive a reflection of data. Confirmations are usually applied in rapport to account balances and should not be limited to this item. A confirmation application might be planned to know if in the agreement has been done any modification, and if there is any change, what these changes are. This type of audit evidence is also used to receive evidence from the lack of several conditions.
5. Recalculation- this consists to control the mathematical exactness of records or different documents. This type of audit evidence might be done using information technology.
6. Reperformance- It is the independence of auditors in executing several controls that are initially done as section of internal control of an entity.
7. Analytical procedures- It happens when the auditors practice the information to determine other data that are linked with the audit. The auditor takes what has been reported on the balance sheet from the bank account balance and then he subtracts done payments, sums up occurred deposits and then closes with the current balance, this is done to verify bank account balances.
A research that was conducted from a Libyan auditor to see the role of audit evidence to supplements its reliability and quality of its review. The research done by this auditor focused to answer the question: “Does audit evidence source obtained by Libyan auditor effects on quality of its report?” (Zakari ; Ahmad, review of integrative business and economics research, 2014)
To collect the information that he needed to answer this question, he used a questionnaire that was targeted to four groups: external, internal, state and taxation auditors.