Module: Audit and Assurance
Seminar 6 – Audit Evidence/Quality Control/Audit Documentation
Question 1
In accordance with ISA 500 Audit Evidence, an auditor should obtain “sufficient
appropriate audit evidence to be able to draw reasonable conclusions on which to
base the audit opinion”.
The following are items of audit evidence obtained during the course of the audit of
Southbank PLC:
1. Correspondence from the lawyers of Southbank PLC regarding a claim for
damages against the company.
2. A trade journal article stating that Southbank PLC faced a decrease in profits
during the current year of some 35% from the previous year.
3. Attendance at the year-end inventory count and making test counts.
4. A reconciliation of Southbank’s payables statements by a member of the
company’s accounts staff.
5. A bank confirmation letter received from the company’s bankers.
Tip: pick out the keywords in the questions!
REQUIRED
i. Explain what is meant by ‘sufficient’ and ‘appropriate’ audit evidence giving
suitable and relevant examples (5 marks)
Sufficiency is about quantity. It’s about whether you are looking at
population versus sample, or if you are looking at different ways or
different evidence to confirm or corroborate what you’ve seen or been told.
Example: look to see whether you have enough samples to represent a
particular population you are looking at; look at various ways to confirm
particular items e.g. car ownership can be confirmed by invoices, a
logbook and by physical inspection.
Appropriate is about quality. Quality is broken down into reliable and
relevant. Example: a bank statement is seen as reliable and relevant
evidence for bank balance confirmation.
ii. For each of the above (in points 1 – 5), state the reliability of the audit
evidence and describe an additional item of audit evidence that you would
seek to support your audit opinion. (10 marks)
Seminar 6 – Audit Evidence/Quality Control/Audit Documentation
Question 1
In accordance with ISA 500 Audit Evidence, an auditor should obtain “sufficient
appropriate audit evidence to be able to draw reasonable conclusions on which to
base the audit opinion”.
The following are items of audit evidence obtained during the course of the audit of
Southbank PLC:
1. Correspondence from the lawyers of Southbank PLC regarding a claim for
damages against the company.
2. A trade journal article stating that Southbank PLC faced a decrease in profits
during the current year of some 35% from the previous year.
3. Attendance at the year-end inventory count and making test counts.
4. A reconciliation of Southbank’s payables statements by a member of the
company’s accounts staff.
5. A bank confirmation letter received from the company’s bankers.
Tip: pick out the keywords in the questions!
REQUIRED
i. Explain what is meant by ‘sufficient’ and ‘appropriate’ audit evidence giving
suitable and relevant examples (5 marks)
Sufficiency is about quantity. It’s about whether you are looking at
population versus sample, or if you are looking at different ways or
different evidence to confirm or corroborate what you’ve seen or been told.
Example: look to see whether you have enough samples to represent a
particular population you are looking at; look at various ways to confirm
particular items e.g. car ownership can be confirmed by invoices, a
logbook and by physical inspection.
Appropriate is about quality. Quality is broken down into reliable and
relevant. Example: a bank statement is seen as reliable and relevant
evidence for bank balance confirmation.
ii. For each of the above (in points 1 – 5), state the reliability of the audit
evidence and describe an additional item of audit evidence that you would
seek to support your audit opinion. (10 marks)
