SA 500 : Audit Evidence

The nature, timing and extent of audit procedures in relation to the
Audit Evidence Gathering process, may be affected by such matters as:
1) The nature and complexity of the matter to which the management’s expert
relates.
2) The risks of material misstatement in the matter.
3) The availability of alternative sources of audit evidence.
4) The nature, scope and objectives of the management’s expert’s work.
5) Whether the management’s expert is employed by the entity, or is a party
engaged by it to provide relevant services.
6) The extent to which management can exercise control or influence over
the work of the management’s expert.
7) Whether the management’s expert is subject to technical performance
standards or other professional or industry requirements.
8) The nature and extent of any controls within the entity over the
management’s expert’s work.
9) The auditor’s knowledge and experience of the management’s expert’s
field of expertise.
10) The auditor’s previous experience of the work of that expert.

Relationship between Audit Risk and materiality and audit Evidence:

Here we find out interrelationship among materiality, audit risk, and audit evidence. There is an inverse relationship between materiality and audit evidence, and an inverse relationship between audit risk and audit evidence.

Similarly, if we hold the materiality level constant and reduce audit evidence, the audit risk must increase to complete the circle. Or, if we wish to reduce audit risk, we can do any of the following:

1. Increase the materiality level while holding audit evidence constant,
2. Increase audit evidence while holding the materiality level constant, or
3. Make a smaller increase in both the amount of audit evidence and the materiality level.

Note:

1).For a given level of audit risk, detection risk should bear an inverse relationship to the risk of material misstatement at the relevant assertion level. The greater the risk of material misstatement, the less the detection risk that can be accepted by the auditor.

2).As the risk increases, the amount of evidence that the auditor should obtain also increases. For example, ordinarily more evidence is needed to respond to significant risks. Quality of the audit evidence obtained. As the quality of the evidence increases, the need for additional corroborating evidence decreases.

3).Why is materiality important? As the basis for the auditor's opinion, ISAs require auditors to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement. The concept of materiality is therefore fundamental to the audit.

Importance of Auditor Judgement, professional skepticism while obtaining Audit Evidence:

1)An audit involves performing procedures to obtain sufficient appropriate audit evidence. The auditor's professional judgement is applied in deciding which procedures are to be performed. ... Professional scepticism is identified by the International Standards on Auditing (ISAs) as the attitude of audit team members.

2)The auditor should also apply professional scepticism when forming the auditor's opinion, by considering the overall sufficiency of evidence to support the audit opinion, and by evaluating whether the financial statements overall are a fair presentation of underlying transactions and events.

3)elements of an effective professional judgment process? (1) Identify and define the issue; (2) Gather the facts and information and identify the relevant literature; (3) Perform the analysis and identify potential alternatives; (4) Make the decision; (5) Review and complete the documentation .