Interpretation and Application of International Standards on Auditing

18

ISA 500 (REDRAFTED) AUDIT EVIDENCE

ISA 500 stipulates what constitutes audit evidence and lays down the guidance that auditors are required to follow in the design and performance of audit procedures which will allow sufficient appropriate audit evidence to be gathered to give reasonable assurance that the financial statements do not contain material misstatement. The phrase ‘reasonable assurance’ is a crucial aspect of the auditor’s report because this refers to the fact that the financial statements are not correct in absolute terms, simply because of the limitations inherent in an audit. Such limitations are:

• Judgements made on behalf of auditors including risk assessments and materiality as well as judging which tests are appropriate and which tests are not.
• It is not practical to test 100% of every item within the financial statements.
• Inherent limitations in accounting and internal controls.
• Possibilities that client staff and management may not be entirely honest.
• Estimates used in the financial statements.

It is for the above reasons that auditors ‘express an opinion’ rather than ‘certify’ the accounts are completely accurate.

Auditors cannot use the inherent limitations as an excuse for not performing a full, thorough and efficient audit. Throughout this book I have referred to audit evidence being ‘sufficient’ and ‘appropriate’.

Sufficient refers to the quantity, as well as the quality, of the audit evidence which needs to be gathered.

Appropriate refers to the ...