Relevance, Auditing


The auditor obtains evidence either through compliance testing of the internal controls or through substantive tests of the information contained in the financial statements and the underlying records. When management establish a system of internal control they make certain assertions. As far as internal controls are concerned, these assertions are:

  1. Existence: that the controls exists;
  2. Effectiveness: that not only does the control exist but that it is effective;
  3. Continuity: not only does it exists and is effective but the control operates throughout the period of intended reliance. So when the auditor is carrying out the compliance tests, any evidence to confirm these assertions is relevant.


The relevance of audit evidence has to be considered in relation to the overall objective of forming an opinion and reporting on the financial statements. To achieve this objective, the auditor needs evidence to enable him to draw reasonable conclusions. Compliance tests alone cannot provide him with this evidence.  He therefore has to use substantive tests. Here also there are certain assertions that the management is making and the auditor seeks evidence to confirm this.

a) Existence:  do the recorded assets and liabilities exist at the balance sheet date.

b) Rights and obligations: are the assets possessed by the enterprise and are the liabilities appropriately those of the enterprise.

c) Occurrence: did the recorded transactions in fact occur and do they relate to the enterprise.

d) Completeness: have all the assets and liabilities been recorded. Have all income and expenditures been recorded.

e) Valuation: have the amounts attributed to the assets and liabilities been arrived at in accordance with stated accounting policies on an acceptable and consistent basis.

f) Measurement: Have the income and expenses been measured in accordance with stated accounting policies on an acceptable and consistent basis.

g) Representation and disclosure: have the assets, accountability, capital and reserves been right disclosed.  Have income and expenditures been appropriately disclosed where appropriate.

Answers to these questions provided by audit evidence obtained are relevant in confirming the assertions made by the management.  Remember that audit evidence obtained in confirming one assertion cannot compensate for failure to obtain evidence to confirm another assertion.

Posted Date: 12/3/2012 6:35:18 AM | Location : United States

Related Discussions:- Relevance, Assignment Help, Ask Question on Relevance, Get Answer, Expert's Help, Relevance Discussions

Write discussion on Relevance
Your posts are moderated
Related Questions
challenges facing sasini company"s audited statements

Question: Part A (i) Describe audit sampling. Why do auditors sample instead of examining every transaction? (ii) List the four factors that enter into the sample size

during the preliminary stage of an audit, an auditor most likely would not do the following

Charities and Non Governmental Organizations Key audit areas: Income: donations therefore are not easy to confirm good internal control is needed particularly o

Pending Litigation - Audit Process Since of the inherent uncertainty, in calculating the outcome of legal actions so this is an especially difficult area for the auditor. Seve

IAS 27 - Audit Process IAS 27 applies to the presentation and preparation of consolidated financial statements for a group of entities within the control of a parent. It as w

The International Auditing and Assurance Standards Board (IAASB) is an independent standard-setting body that serves the public interest by setting high-quality international stand

Assertions about classes Assertions about classes of transactions and events for the period under audit : a) Occurrence -events and transactions which have been recorde

Develop a list of tasks the auditor should perform in planning this audit engagement, before any audit testing begins. Handbook section CAS 315 lists management assertions embod