Evidence and

reporting

Naima Sultana FCA

 Audit Evidence
All of the information used by the auditor in arriving at the conclusions on
which audit opinion is based.
Audit evidence includes all the information contained within the accounting
records underlying the financial statements, and other information
gathered by the auditors, such as confirmation from third parties.
There are potentially two types of test which they will carry out:

1.Tests of controls and

2. Substantive procedures.
Test of controls:
Test of controls performed to obtain audit evidence about the effectiveness
of controls in preventing, detecting and correcting material misstatement at
the assertion level.

Substantive procedure:
Audit procedures performed to detect material misstatements at the
assertion level including:
•Test of detail of classes of transaction, account balances and disclosures; and
•Substantive analytical procedures.
 Sufficient Appropriate Audit Evidence 
ISA 500 Audit Evidence requires auditors to obtain sufficient appropriate
audit evidence to be able to draw reasonable conclusions on which to base
the audit opinion. Sufficiency and appropriateness are interrelated and
apply to both tests of controls and substantive procedures.
Sufficiency is the measure of the quantity of audit evidence.
Appropriateness is the measure of the quality or reliability of the audit
evidence.
 Quality of Evidence
The following generalizations may help in assessing the reliability of audit evidence:

Entity
External Evidence obtained Originals 
from the entity’s
Audit evidence from records is more Original
external sources is reliable when related documents are
more reliable than control systems more reliable
that obtained from than photocopies
the entity’s operate effectively.
or facsimiles.
records.
Written
Auditor Evidence in the form
Evidence obtained of documents
directly by (paper or
auditors is more electronic) or
reliable than that written
obtained indirectly representations
or by inference. are more reliable
than oral
representations.
 Financial Statement Assertions

The financial statements assertions are representations by management,

explicit or otherwise, that are embodied in the financial statements. 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.
 Assertions Used by the Auditors:

Assertions about • Occurrence

• Completeness
classes of • Accuracy
transactions and • Cut-off
events • Classification

• Existence
Assertions about • Right and obligations
account balances • Completeness
• Valuation and Allocation

• Completeness
Assertion about • Occurrence and Right and Obligations
presentation and • Classification and understandability
• Accuracy and valuation
disclosure
 Reporting
The auditor should review and assess the conclusions drawn from the audit
evidence as obtained as the basis for the expression of an opinion on the
financial statements.
Basic Elements/ Contents of the Auditor’s Report:
The auditor’s report includes the following basic elements ordinarily in the following
layout: 
Title
Addressee
Opinion Paragraph containing-
• Reference to the financial reporting framework used to prepare the financial
statements (including identifying the country of origin of the financial reporting
framework that is not International Financial Reporting Framework) and
• An expression of opinion on the financial statements.
Basis for Opinion
Key Audit Matters (description of each key audit matters in accordance with ISA 701)
Other Information
Responsibilities of Management and those charged with Governance for the
Financial Statements
Auditor’s Responsibilities for the Audit of the Financial Statements
Report on other legal and regulatory requirements
Auditor’s Signature.
Auditor’s Address and
Date of the report
 The Auditor’s Report
a) Unqualified Report
b) Modified Reports
Unqualified Report:
An unqualified opinion should be expressed when the auditor concludes that the
financial statements give a true and fair view (or presented fairly, in all material
respects) in accordance with the identified financial reporting framework.
Modified Reports:
An auditor’s report is considered to be modified in the following situations:
Matters That Do Not Affect the Auditor’s Opinion
(i) Emphasis of Matter
Matters That Affect the Auditor’s Opinion
(ii) Qualified Opinion
(iii) Disclaimer of Opinion
(iv) Adverse Opinion
 Matters That Do Not Affect the Auditor’s Opinion
In certain circumstances, an auditor’s report may be modified by adding an
emphasis of matter paragraph to highlight a matter affecting the financial
statements which is included in a note to the financial statements that more
extensively discuss the matter.
“Without qualifying our opinion, we draw attention to Note X to the
financial statements. The company is the defendant in a lawsuit alleging
infringement of certain patent rights and claiming royalties and punitive
damages. The company has filed a counter action and preliminary hearings and
discovery proceedings on both actions are in progress. The ultimate outcome
of the matter cannot presently be determined and no provision for any
liability that may result has been made in the financial statements.” (This is
an illustration of an emphasis of matter paragraph relating to going concern).
 Matters That Affect the Auditor’s Opinion
An auditor may not be able to express an unqualified opinion when either of
the following circumstances exists and, in the auditor’s judgment, the effect of
the matter is or may be material to the financial statements:
a) There is a limitation on the scope of the auditor’s work
These circumstances could lead to a qualified opinion or a disclaimer of
opinion.
b) There is a disagreement with management regarding the acceptability of
the accounting policies selected, the method of their application or the
adequacy of financial statement disclosures 
These circumstances could lead to a qualified opinion or an adverse opinion.
A qualified opinion should be expressed when the auditor concludes that an
unqualified opinion cannot be expressed but that the effect of any
disagreement with management or limitation on scope is not so material
and pervasive as to require an adverse opinion or a disclaimer of opinion. A
qualified opinion should be expressed as being “except for” the effects of the
matter to which the qualification relates.
A disclaimer of opinion should be expressed when the possible effect of a
limitation on scope is so material and pervasive that the auditor has not
been able to obtain sufficient appropriate audit evidence and accordingly is
unable to express an opinion on the financial statements.
An adverse opinion should be expressed when the effect of a disagreement is
so material and pervasive to the financial statements that the auditor
concludes that a qualification of the report is not adequate to disclose the
misleading or incomplete nature of the financial statements.
 Expectation Gap
The expectation gap is defined as the difference between the apparent public
perceptions of the responsibilities of auditors on the other hand the legal
and professional reality. 
It can also be said, the expectation gap is, what the assurance provider
understands, he does and what the user of the information believes, he does.
 Expectation Gap
The 'expectations gap' is defined as the difference between the apparent public perceptions of
the responsibilities of auditors on the one hand and the legal and professional reality on the
other.
Misunderstanding of the nature of audited financial statements
The balance sheet provides a fair valuation of the reporting entity.
The amounts in the financial statements are stated precisely.
The audited financial statements will guarantee that the entity concerned will continue to exist.
Misunderstanding as to the type and extent of work undertaken by auditors
All items in financial statements are tested
Auditors will uncover all errors
Auditors should detect all fraud
Misunderstanding about the level of assurance provided by auditors
The auditors provide absolute assurance that the figures in the financial statements are correct
(Ignoring the concept of materiality and the problems of estimation).
 Contents of the assurance report of the International Standard on
Assurance Engagement (ISAE)
The international standard on assurance engagements requires that an assurance report
must have the following components:
A title that clearly indicates the report is an independent assurance report;
An address;
An identification and description of the subject matter information and when
appropriate, the subject matter;
Identification of the criteria;
Where appropriate, a description of any significant inherent limitation associated with
the evolution or measurement of the subject matter against the criteria;
When the criteria used to evaluate or measure the subject matter are available only to
specific intended users, or are relevant only to a specific purpose, a statement
restricting the use of the assurance report to those intended users or that purpose;
 Contents of the assurance report of the International Standard on
Assurance Engagement (ISAE) (cont.…..)
A statement to identify the responsible party and to describe the responsibilities of
the responsible party and the practitioner;
A statement that the engagement was performed in accordance with ISAEs;
A summary of the work performed;
The practitioner’s conclusion (positive or negative);
The assurance report date; and
The name of the firm or practitioner with a specific location that has responsibility for
the engagement. 
Thank You