Substantive testing stage: evidence evaluation:
AR*4 ~ AR4
Evidence evaluation activities in the substantive testing stage
includes the evaluation of the acceptable audit risk,
AR*
4, for comparison with the (achievable)
audit risk, AR
4, for each material account balance assertion. In
addition, the auditor estimates whether a sufficient quantity and
appropriate quality of audit evidence has been gathered in order to
make a conclusion about the completeness, validity and accuracy of
each account balance exercising an appropriate degree of
professional skepticism.
Thus, for each material account balance assertion, the auditor evaluates:
- acceptable audit
risk AR*4. The level of this risk may not
have altered since the evaluation of in the audit
planning stage. Depending on the extent of expected reliance, the risk is evaluated as VERY LOW (extensive reliance), LOW (moderate reliance), MODERATE (low reliance).
- (achievable) audit risk, AR4. Based on:
- the extent of exceptions found within the account balance,
- the value of planning materiality for that account balance,
- the value of items comprising the account balance that the auditor has selected for examination, and
- the total value of the account balance,
the auditor evaluates the (achievable) audit risk for each account balance assertion, as VERY LOW, LOW , MODERATE or HIGH.
However, in this audit stage, practice differs from audit risk theory [fn].
In addition, the auditor evaluates the sufficiency and appropriateness of audit evidence. In other words, the auditor evaluates whether the evidence gathered is of sufficient
quantity and appropriate quality, based on its
relevance and
reliability, so as to be able to
form a conclusion about the risk evaluations. If not, the auditor gathers further
evidence.
After the completion of the evaluations above, the auditor makes a
conclusion on individual account balances. Refer to
next activity.
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