Evaluation of Audit EvidenceEvaluation of Audit Evidence

Evaluation of Audit Evidence

87 Under ASA 330, the auditor, based on the audit procedures performed and the audit evidence obtained, needs to evaluate whether the assessments of the risks of material misstatement at the assertion level remain appropriate. This evaluation is primarily a qualitative matter based on the auditor’s judgement. Such an evaluation may provide further insight about the risks of material misstatement due to fraud and whether there is a need to perform additional or different audit procedures. As part of this evaluation, the auditor ordinarily considers whether there has been appropriate communication with other engagement team members throughout the audit regarding information or conditions indicative of risks of material misstatement due to fraud.

88 An audit of a financial report is a cumulative and iterative process. As the auditor performs planned audit procedures information may come to the auditor’s attention that differs significantly from the information on which the assessment of the risks of material misstatement due to fraud was based. For example, the auditor may become aware of discrepancies in accounting records or conflicting or missing evidence. Also, relationships between the auditor and management may become problematic or unusual. Appendix 3 to this Auditing Standard contains examples of circumstances that may indicate the possibility of fraud.

89 The auditor shall consider whether analytical procedures that are performed at or near the end of the audit when forming an overall conclusion as to whether the financial report as a whole is consistent with the auditor’s knowledge of the business indicate a previously unrecognised risk of material misstatement due to fraud.

90 Determining which particular trends and relationships may indicate a risk of material misstatement due to fraud may require professional judgement. Unusual relationships involving year-end revenue and income are particularly relevant. These might include, for example, uncharacteristically large amounts of income being reported in the last few weeks of the reporting period or unusual transactions; or income that is inconsistent with trends in cash flow from operations.

91 When the auditor identifies a misstatement, the auditor shall consider whether such a misstatement may be indicative of fraud and if there is such an indication, the auditor shall consider the implications of the misstatement in relation to other aspects of the audit, particularly the reliability of management representations.

92 The auditor cannot assume that an instance of fraud is an isolated occurrence. Also, the auditor ordinarily considers whether misstatements identified may be indicative of a higher risk of material misstatement due to fraud at a specific location. For example, numerous misstatements at a specific location, even though the cumulative effect is not material, may be indicative of a risk of material misstatement due to fraud.