Page 102 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori

05 AUDIT EVIDENCE

Case Study – CA. Kartik
Efficiency: CA. Kartik values efficiency and avoids wasting time on unnecessary tasks. He strives for perfection
and cost-effectiveness in his professional work as an auditor.
Audit Approach: Kartik uses his judgment to select specific items for "tests of details". For instance, he verifies
sales transactions and fresh additions to "Property, Plant and Equipment" above a certain threshold.
Suspicious Transactions: Kartik grows suspicious of sales transactions aggregating to a large sum at the end of
the year, specifically those lacking proper documentation, and decides on an external confirmation request.
Related Party Transactions: He also decides to investigate all related party transactions for any material
misstatements.
Litigation Claims: Kartik considers litigation claims as a misstatement prone area and includes them in
detailed examination.
Selective Examination: This testing approach, while efficient, does not constitute audit sampling. The results
of tests conducted on selected items cannot be projected onto the entire population.
Non-Sampling Risk: This approach is subject to non-sampling risk - the risk of the auditor reaching an
incorrect conclusion due to inappropriate audit procedures or misinterpretation of audit evidence.
Audit Sampling: In contrast, audit sampling refers to the application of audit procedures to less than 100% of
items within a population, with all items having an equal chance of selection.
Sampling Risk: Audit sampling is subject to sampling risk - the risk that the auditor's conclusion based on a
sample may differ from the conclusion if the entire population were subjected to the same audit procedure.

SA 500

AUDIT EVIDENCE

(CNO-SA500.020) Methods of Obtaining Audit Evidence
Observation
Definition: Auditors look at procedures being performed, such as inventory counting or control activities, to
gather audit evidence.
Restricted to the specific moment: The evidence obtained from observation is restricted to the specific
moment the process is observed.
Observer Effect: The act of observation may influence how the procedure is conducted. Despite its limitations,
observation is a crucial method for collecting audit evidence.
Inspection
Document examination: The process of examining records or documents, which can be internal or external.
These documents can be in paper form, electronic form, or other media.
Asset Examination: Inspection can also involve a physical examination of an asset.
Inquiry
Definition: The process of seeking information from knowledgeable individuals. Inquiry is a key method used
extensively throughout the audit, complementing other audit procedures.
Sources: These individuals can be within or outside the entity and can provide both financial and non-
financial information.
Recalculation

www.auditguru.in 5.1