Page 104 - CA Inter Audit PARAM

CA Ravi Taori
as audit evidence for ascertaining appropriate valuation of provisions. As an auditor, what will you do to
evaluate the competence, capabilities, objectivity and an understanding of the work of the actuary-expert
who has carried out actuarial valuation of gratuity?
Answer As per SA 500, “Audit Evidence”, issued by ICAI, when using the work of a management’s expert as audit
evidence the auditor should evaluate the competence, capabilities and objectivity of that expert that:

• Whether the expert is employed by the entity or is an outside party.
• Whether the expert is independent in respect of the entity.
• Auditor’s previous experience of the work of the expert.
• Knowledge of the expert, his qualification, membership of a professional body or industry association,
etc.

The auditor should also obtain an understanding of the work of that expert that:

• Whether the auditor has expertise to evaluate the work of the expert.
• Evaluating the assumptions and methods used by the management.
• Evaluating the nature of internal or external data used by the expert.

Audit Evidence- Related Matters / Features / Old Course - (N19R/SM20/SM21)
QNO 500.03 Characteristic New Course - (SM25)
Bhaskar CNO SA500.120
Audit evidence is necessary to support the auditor’s opinion and report. It is cumulative in nature and
is primarily obtained from audit procedures performed during the course of the audit. Most of the
auditor’s work in forming the auditor’s opinion consists of obtaining and evaluating audit evidence.
Explain
OR
Most of the auditor’s work in forming the auditor’s opinion consists of obtaining and evaluating audit
evidence. Explain
Sufficiency • Sufficiency is measure of quantity of audit evidence.
and • Appropriateness is measure of quality of audit evidence.
Appropriat
e
Discussion • The auditor shall design and perform audit procedures that are appropriate in the circumstances
for the purpose of obtaining sufficient and appropriate audit evidence.
• Audit evidence is necessary to support the auditor’s 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.
• In addition to other sources inside and outside the entity, the entity’s 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 management’s expert.
• Audit evidence comprises both information that supports and corroborates management’s
assertions, and any information that contradicts such assertions.
• In addition, in some cases the absence of information (for example, management’s refusal to
provide a requested representation) is used by the auditor, and therefore, also constitutes audit
evidence.

Most of the auditor’s work in forming the auditor’s opinion consists of obtaining and evaluating audit
evidence. Audit procedures to obtain audit evidence can include inspection, observation, confirmation,
recalculation, re-performance 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.

As explained in SA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with Standards on Auditing”, 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
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