In order to arrive at an opinion on the truth and fairness of a set of financial

Question

In order to arrive at an opinion on the truth and fairness of a set of financial statements, auditors have to gather and evaluate audit evidence.

Required:

(a) The source of the evidence is of prime importance in evaluating the quality of the evidence. For example, one type of evidence originates from the client’s company, passes through the hands of third parties, and is then returned to the client where it is available for the auditor’s inspection. Briefly discuss the effect of the sources of documents on the reliability of the evidence. Give examples to support your answers. (7 marks)

(b) Discuss reasons why auditors may make use of the work of experts, other auditors etc. as audit evidence. In general, how do auditors check the quality of the work performed by experts? (3 marks)

(c) The major purpose of audit working papers is to document the evidence gathered by the auditor. List five other purposes or uses of audit working papers. (5 marks)

Explanation / Answer

(a) effect of the sources of documents on the reliability of the evidence

(b) In certain circumstance, auditors may need to rely on the work of, or consult parties not involved in the audit processs. Auditors may choose to rely on the work of others because they find it effective to do so.

Also, in certain circumstances there are joint auditors to perform the uadit function. Work and responsibility among them are properly distributed and one auditor has to rely on the work performed by other on its area of distribution to make opinion upon overall financial statements.

Auditors do not need to be experts in all aspects of the client's businesses. Where they lack the technical knowledge and skills to gether evidence about transactions, balances and disclosures they should seek the assistance of an expert. Example:

Checking the quality of the work performed by experts by auditors:

Auditors must assess the expert's Independence and objectivity ; and competence i.e. qualifications, memberhip of professional bodies and experience before assigning any work to him. The quality of work performed the expert or other auditors depends upon knowledge, qualifcations, certifications, independence, objectivity and competence posessed by him.

(c) The major purpose of audit working papers is to document the evidence gathered by the auditor. five other purposes or uses of audit working papers:

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