Activity Based Risk Evaluation Model of Auditing

HOME >> BASIC CONCEPTS >> AUDIT ACTIVITIES >> EVIDENCE GATHERING

Evidence gathering activities

Evidence gathering activities in auditing correspond to information search activities in human information processing theory. These activities include all the activities performed by auditors that have as their objective the gathering of audit evidence ^[fn] in each of the five audit stages.

However, all though the broad objective of these activities is to gather audit evidence, the objective of any particular activity depends on the audit stage in which the activity is performed. The audit stages and particular objectives are as follows.

• In the client acceptance/ rejection stage, the auditor undertakes risk assessment procedures at the financial statement level based upon the auditor's preliminary knowledge of the client's business.
• In the audit planning stage, the auditor performs risk assessment procedures at the account balance assertion level based upon a detailed knowledge of the client's business, including evidence of the evidence of the design effectiveness of internal control procedures. Auditors reperform control procedures to gather some of this evidence.
• In the control testing stage, the objective is to gather audit evidence to enable the auditor to evaluate the operational effectiveness of internal control procedures upon which the auditor has planned reliance. In this audit stage, evidence gathering activities are referred to as tests of controls.
• In the substantive testing stage, the objective is to provide the auditor with evidence of the extent of substantive misstatements in account balances and underlying classes of transaction. Evidence gathering activities in this stage are referred to as substantive procedures (or substantive tests).
• In the opinion formulation stage, the objective is to provide the auditor with evidence of the consistency of the financial statements with the auditor's knowledge of the business.

The activities may be performed manually or using computerized audit techniques, in which case they are referred to as CAATs (Computer Assisted Audit Techniques). Also, although some activities are peculiar to a specific audit stage (e.g. cut-off tests in the substantive testing stage), other activities such as inquiry, ratio analysis, inspection, observation, transaction testing and computation may be carried out in more than one or even all audit stages. However, the particular objective of each activity, as mentioned above, is different in each audit stage.

Copyright, Australian Educational Research Pty Ltd. Any person accessing this site agrees to the Terms of Use.