Standards of Auditing

500, 501& 230

Made By
Saradindu Chakraborty (23)
Saptashaw Majumder (15)
 SA- 500
Audit Evidence
 Definition
Audit Evidence refers to information or data that is used by auditors as
part of their audit works to conclude their opinion whether or not financial
statements are prepared in all material respect and in accordance with the
applicable financial frameworks.
Before auditor could make the conclusion on the financial statements as
whole or any part, they need to make sure that the evidence they obtain is
sufficient enough with appropriate quality to make the conclusion.
Sufficient and appropriate audit evidence is important for the auditor to
form audit opinions. Audit risks that auditor might face also depend on
audit sufficient and appropriate of the evidence.
 Scope
 This standard on auditing explains what constitutes audit evidence in
an audit of financial statements, and deals with the auditor’s
responsibility to design and perform audit procedures to obtain
sufficient appropriate audit evidence to be able to draw reasonable
conclusions on which to base the auditor’s opinion.

 This SA is applicable to all the audit evidence obtained during the

course of the audit. Other SAs deal with specific aspects of the audit
specified procedures to obtain audit evidence and the evaluation of
whether sufficient appropriate audit evidence has been obtained.
 Objective
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.

Effective Date
This SA is effective for audits of financial statements for periods
beginning on or after 1st April, 2009
 Procedures of obtaining
Audit Evidence
There are many procedures that auditors use to obtain audit evidence to support their
conclusion. Such procedures include audit inquiry, audit observation, audit inspection,
analytical procedure, audit recalculation, Audit confirmation, as well as re performance.
 Audit inquiry: Auditor inquire management on certain business transactions or events for
the purpose of obtaining an understanding or to confirm some related assertion.
 Audit observation: Auditor observe the way how certain controls related to financial
reporting perform.
 Audit Inspection: Auditor inspect on certain documents or evidence that related to
financial transaction or event.
 Analytical Procedure: Analytical procedure is normally used by the auditor to assess the
transactions or amounts in the financial statements through other financial and non-
financial data.
 Recalculation: Auditor sometimes recalculates some depreciation expenses that prepare
by management.
 Re performance: Auditor sometimes re-performs bank reconciliation that prepares by the
client
 Sorces of Audit Evidence
Auditors use audit evidence in many different forms and sources.
Those audit evidence could be data or information, physical or non-
physical.
 Financial Statements
 Accounting information
 Bank accounts
 Management Accounts
 Fixed assets register
 Payrolls Listing
 Bank Statements
 Invoices
 Receipts
 Sources from which quality of audit
evidence is increased
The quality of audit evidence is very important to make sure that the conclusion
that makes by the auditor is correct. If the information is not strong or low quality,
the audit risks of making incorrect audit opinion are high.
The Quality of audit evidence is dependent mainly on the form and source of the
evidences. Here is the detail:
 External Source:The evidence that obtains directly from external parties like
customers, suppliers, or banks are more reliable than obtaining from clients. For
example, accounts receivable confirmations that obtain from client’s customers are
more reliable than the records prepared by clients.
 Prepare by Auditor:The evidence that prepares by auditors themselves are more
reliable than the one that prepares by or obtains from the client. For example, the
bank reconciliation prepared by the auditor is more reliable than the bank
reconciliation prepared by accountant.
 Prepare by client:The level of reliability of evidence that obtains from clients are
depending on the reliability of client internal control.
 Written form:The audit evidence that forms in written are more reliable than the
one that forms in verbal. For example, management confirmation in the form of
email is more reliable than the confirmation by verbal.
 Original form:Original invoices that use to support the payments transactions are more
reliable than the copy invoices.
 SA – 501
Audit Evidence –
Specific Consideration
for selected items
 Scope
This Standard on auditing deals with specific considerations by the
auditor in obtaining sufficient appropriate audit evidence in accordance
with SA 330, SA 500and other relevant SAs, with respect to certain
aspects of inventory, litigation and claims involving the entity, and segment
information in an audit of financial statements.

Effective Date
This SA is effective for audits of financial statements for periods
beginning on or after 1st April, 2010.
 Introduction
This SA deals with specific consideration by an auditor to obtain
sufficient & appropriate audit evidences with aspect to certain aspects of:-
 Inventory
 Litigations& Claims
 Segment Information
 Inventory
Auditor’s duty in regards to inventory is to obtain sufficient & appropriate audit
evidences regarding existence & condition of inventory.

Attendance at physical • The auditor should attend physical inventory

inventory counting
• Matters to be considered by the auditor while
counting, if practicable for him.
planning for attend at physical inventory counting
 Nature of Inventory
 Materiality of inventory
 Timing of physical inventory reporting
 Risk of material misstatement
 Stage of completion of work-in-progress
 Nature of internal controls in regards to
inventory

Cont.…
 Procedures to be followed by Auditor at physical count

Evaluate Management’s The auditor should evaluate management procedures

instructions & procedures for recording and controlling such as
• Method of collection of used physical inventory
counts record
• Accounting for unused physical inventory counts
records
• The accurate identification of the stage of
completion of work-in-progress
• Procedures used to estimate physical quantities

Inspection Of Inventory The auditor should ascertain whether

inventory actually exists physically or not.Such
inspection helps in identifying
obsolete,damaged or ageing inventory.
 Some cases to be dealt by auditor Auditor’s duty in such case

• If the physical inventory counting To ascertain whether the changes in

is conducted at the date other inventory between the count date and
than the date of financial the date if the financial statements are
statements properly recorded
• If the auditor is unable to attend Observe some physical counts on an
physical inventory counting due alternative date and Perform audit
to unforeseen circumstances procedures on interviewing transactions

• Where the attendance at physical Adopt alternative audit procedures.

inventory counting is In case the auditor is unable to adopt
impracticable alternative audit procedures, the auditor
shall modify his opinion in the auditor’s
report.
• Where the inventory is under the Obtain external confirmation from that
custody & control of the 3rd party party on behalf of the entity in regards to
the quantity & the condition of the
inventory. Perform inspection or other
appropriate procedures.
 Litigations & Claims
Auditor’s Duty Auditor’s Procedures
To identify the litigations & claims • Inquiring with management, in-house legal
counsel
• Reviewing minutes of meetings of those
charged with governance &
correspondence between the entity & its
external counsel
• Reviewing legal expense account
If the auditor assess the risk of material • Seek direct communication with the
misstatement due to existing litigations or entity’s external legal counsel through a
claims letter of enquiry
• In case law, regulation or the respective
legal professional body prohibits the
entity’s external legal counsel from
communicating directly with the auditor.
To obtain written representation from • It is obtained by the auditor
• It is collected from management
• Properly accounted for & disclosed in
accordance with the applicable financial
reporting framework.
 Segment Information
A business segment is a part of the company that has operations that can
function on its own independently from the company

Auditor’s Duty Audit Procedures

Obtain an understanding of the • Evaluate such methods
methods used by the management in • Check whether such methods are
determining segment information likely to results in disclosure in
accordance with the applicable
financial reporting framework.
• Perform analytical procedures
 SA-230
Audit
Documentation
 Definitions
 Audit Documentation- It refers to the record of audit procedures
performed, relevant audit evidence obtained, and conclusions the
auditor reached. This SA is effective for audits of financial statements
for periods beginning on or after April 1st 2009.

 Audit File – One or more folders or other storage media, in physical or

electronic form, containing the records that comprise the audit
documentation for a specific engagement.

 Experienced Auditor – An individual who has practical audit

experience, and a reasonable understanding of audit process, SAs and
applicable legal and regulatory requirements, the business entity in
which the entity operates, etc.
 Objectives

The objective of the auditor is to prepare documentation

that provides:-
 A sufficient and appropriate record of the basis for the
auditor’s report

 Evidence that the audit was planned and performed in

accordance with SAs and applicable legal and regulatory
requirements.
 Scope

This standard on auditing deals with the auditor’s

responsibility to prepare audit documentation for an audit of
financial statements. It is to be adapted as necessary in the
circumstances when applied to audits of other historical
financial information. The specific documentation
requirements of other SAs do not limit the application of this
SA. Laws or regulations may establish additional
documentation requirements.
 Ownership of Audit documentation
Standards on Quality Control (SQC) 1, “Quality Control for
firms that perform audit and reviews of historical financial
information, and other assurance and related services
engagements” issued by the institute, provides that, unless
otherwise specified by law or regulation, audit documentation
is the property of the auditor. He may at his discretion, make
portions of, or extracts from, audit documentation also
available to clients, provided such disclosure does not
undermine the validity of the work performed, or, in the case
of assurance engagements, the independence of the auditor
or of his personnel.
 Example

this is an example of Chantry Martin and Company and

Martin in 1953 where
The professional working papers of a firm of accountants were
held not to be the property of the client, but letters and other
papers created by accountants as agent for client were the
client’s property: Working accounts and other papers which
were brought into existence by chartered accountants in the
preparation of a final audit of a client’s books are the property
of the accountants and not of the client.
Thank You