Published On:Wednesday 14 December 2011
Posted by Muhammad Atif Saeed
Audit-Evidence:
It is obtained by applying necessary audit procedures. Audit procedures should be based on requirements of ISAs, relevant professional bodies, legislation, regulations, and the terms of the audit engagement and reporting requirements.
Auditing is concerned with the verification of accounting date and with determining the accuracy and reliability of accounting statements and reports. Verification does not mean seeking proof or absolute certainty in connection with the data and reports being audited. It means looking for sufficient evidence depends on what experience and knowledge of contemporary auditing standards tells one is satisfactory.
An auditor obtains audit evidence regarding management’s assertions for the following areas:
a. Existence: an asset or liability exists at the Balance Sheet date. This is an obvious assertion with such items as land and buildings, stocks and others
b. Rights and obligations: an asset or liability pertains to the entity at the Balance Sheet date. This means that the enterprise has for example ownership of an asset. Ownership as an idea is not simple and there may be all sorts of rights and obligations connected with a given asset or liability.
c. Occurrence: a transaction or event took place which pertains to the enterprise during the relevant period. It may be possible for false transactions (e.g. sales or purchases) to be recorded. The assertion is that all recorded transactions actually took place.
d. Completeness: there are not unrecorded assets, liabilities, transactions or events or undisclosed items. This is important for all accounts items but is especially important for liabilities.
e. Valuation: an asset or liability is recorded at an appropriate carrying value Appropriate may mean in accordance with generally accepted accounting principles, the companies Act rules, Accounting Standards requirements and consistent with statements of accounting policies consistently applied.
f. Measurement: a transaction or event is recorded at the proper amount and revenue or expense allocated to the proper period.
g. Presentation and disclosure: an item is disclosed, classified and described in accordance with applicable reporting framework. For example fixed assets are subject to the Companies Ordinance rules and to IAS 16.
An example:
We will look at an item in a balance sheet, bank overdraft Rs. 10,250. In reporting this item in the balance sheet, the directors are making these assertions:
a. That there is a liability to the company’s bankers.
b. That at the balance sheet date this liability was Rs. 10,250.
c. That this amount is agreed by the bank
d. That the overdraft was repayable on demand. If this were not so, it would not appear amongst the current liabilities and terms would be stated.
e. That the overdraft was not secured. If it were secured this fact would need to be stated.
f. That the company has the Authority to borrow from its Memorandum and Articles.
g. That a bank reconciliation statement can be prepared.
h. That the bank is willing to let the overdraft continue.
If no item ‘bank overdraft’ appeared in the balance sheet, it would represent an assertion by the directors that no overdraft liability existed at the balance sheet date.
Auditing is concerned with the verification of accounting date and with determining the accuracy and reliability of accounting statements and reports. Verification does not mean seeking proof or absolute certainty in connection with the data and reports being audited. It means looking for sufficient evidence depends on what experience and knowledge of contemporary auditing standards tells one is satisfactory.
An auditor obtains audit evidence regarding management’s assertions for the following areas:
a. Existence: an asset or liability exists at the Balance Sheet date. This is an obvious assertion with such items as land and buildings, stocks and others
b. Rights and obligations: an asset or liability pertains to the entity at the Balance Sheet date. This means that the enterprise has for example ownership of an asset. Ownership as an idea is not simple and there may be all sorts of rights and obligations connected with a given asset or liability.
c. Occurrence: a transaction or event took place which pertains to the enterprise during the relevant period. It may be possible for false transactions (e.g. sales or purchases) to be recorded. The assertion is that all recorded transactions actually took place.
d. Completeness: there are not unrecorded assets, liabilities, transactions or events or undisclosed items. This is important for all accounts items but is especially important for liabilities.
e. Valuation: an asset or liability is recorded at an appropriate carrying value Appropriate may mean in accordance with generally accepted accounting principles, the companies Act rules, Accounting Standards requirements and consistent with statements of accounting policies consistently applied.
f. Measurement: a transaction or event is recorded at the proper amount and revenue or expense allocated to the proper period.
g. Presentation and disclosure: an item is disclosed, classified and described in accordance with applicable reporting framework. For example fixed assets are subject to the Companies Ordinance rules and to IAS 16.
An example:
We will look at an item in a balance sheet, bank overdraft Rs. 10,250. In reporting this item in the balance sheet, the directors are making these assertions:
a. That there is a liability to the company’s bankers.
b. That at the balance sheet date this liability was Rs. 10,250.
c. That this amount is agreed by the bank
d. That the overdraft was repayable on demand. If this were not so, it would not appear amongst the current liabilities and terms would be stated.
e. That the overdraft was not secured. If it were secured this fact would need to be stated.
f. That the company has the Authority to borrow from its Memorandum and Articles.
g. That a bank reconciliation statement can be prepared.
h. That the bank is willing to let the overdraft continue.
If no item ‘bank overdraft’ appeared in the balance sheet, it would represent an assertion by the directors that no overdraft liability existed at the balance sheet date.
