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Analysis of Audit Evidence

Audit Evidence

Audit evidence is the material used by the auditor in reaching its opinion. Based on this audit information, auditors determine the credibility of financial reports. Evidence must be adequate and suitable to reach decisions. Sufficient means the amount of the evidence and suitable means to value (trustworthiness and significance) of the evidence. (Niktba, 2015)

Procedures for Obtaining Audit Evidence

There are several methods were available to the auditor for obtaining evidence. The auditor should choose the most relevant techniques in every situation while obtaining evidence. However, the following are some of the main procedures being used in the evidence collection process. (Suryanto, 2015)

1). Inspection

In this approach, we collect audit evidence through inspection. For example, looking at an item of tangible assets i.e. property, plant and equipment, inventory, an inspection of entries in the accounting system or documents i.e. invoices.

2). Inquiry

Inquiry means seeking information from knowledgeable persons within the organization (Management) or outside (supplier, lenders, etc.) the entity. Assessing replies to those inquiries and then agreeing to those replies with other audit evidence.

3). Observation

Observation involves watching a method or process being executed by the entity personnel. Evidence from observation is limited to the time of observation. Because people may change their approach while they are being observed. For example, observation of entity personnel’s counting inventory items, observation of the entity’s wages distribution process, etc.

4). External Confirmation

This process includes obtaining confirmation from external parties like banks, lenders, suppliers, etc.

5). Re-performance

In this method auditors autonomously re-performing techniques or controls being executed by the client being portion of its in-house control. For example, aging of account receivables, etc.

6). Recalculation

Recalculation includes scrutinizing the mathematical correctness of papers or proceedings. Re-calculation of trial balance or bank reconciliation etc.

7). Analytical procedures

Assessment and comparison of monetary and non-monetary information through plausible relationships and scrutinizing any unusual variations. For example, calculation of ratios and comparison of sale with last years’ sale.

Gail Industries

PRELIMINARY AUDIT FINDINGS

Audit Period: 1/1/2018 – 12/31/2018

Audit Field Work Dates: 1/3/2019 – 1/24/2019

During our course of the audit, some of the preliminary findings during the audit are being reported as and a brief description of every finding is attached;

Category	Findings	Brief description of key findings
Data capture and imaging	provides images, captures data, accountability and checking remittances.	We have conducted inspection and observation to ensure controls being performed or not. Nothing has come to our knowledge as operations are being per the rules and regulations.
Invoice Management and Reporting	To ensure data correction, maintenance of utilized funds and historical analysis	Inspection of the company invoicing system suggests that there is segregation of duties i.e. raising invoices, recording, etc. are being segregated among the staff.
Environmental Safeguards	Do not show complete details No expiry date mention Do not show internal inspection check regularly	We have observed that controls are not being followed completely as there are no specific dates for expiry as well as regular checking occurred.
Physical Security	No separate cabins Anyone can lift file or laptop	Controls related to the security of documents are not properly maintained as no separate section is maintained to save files and documents.
Deposits	Some details are completely missing Timing is not recorded Courier stamp missing Signatures are missing	A random sample of 70 invoices was taken to ensure fake invoices certain invoices were not related to any party and have no records found.
Payment Processing	No separate system Lack of segregation of duties No proper check and balance	A sample was picked and matched with the relevant invoices but some deficiencies existed as processing was too slow. We observed that everyone can process payment invoices and no separate person was appointed for this purpose. A lack of segregation of duties was observed during the audit. It was ensured that all transactions have been captured from the transaction processing system.
Data Transmission	Access to double entry Capturing all transactions Recording all transactions	Although access to a double-entry system was strict and safe a sample of 40 invoices suggests certain transactions were not yet processed means the transaction processing system was not up to the mark. Access to double-entry should be strictly allowed to only authorized personnel.
Change Management	To ensure operations continuing without interruption and decisions being made accordingly	Management properly ensured that any change in management will not affect the operational activities of the company. And made clear rules for it.

Collaborating to the Top Management

While planning as well as performing the examination of financial reports and tests of controls a deficiency in internal controls prevail regarding the receiving and issuing inventory.

Management need to clarify some rules and monitor directors and chief executives to maintain an accountable system within the company (Siam, (2016)). Certain deficiencies were found which must be addressed and removed to ensure that activities are being performed as per plan if not taking corrective actions. Internal audit function also needs to be reactive to a situation like payment to suppliers, receipts from customers, and proper recording of transactions to ensure no transaction is recorded twice or recorded with fake value or any fictitious invoice is recorded. Although certain controls were tight and monitored as per management instruction somewhere segregation of duties did not exist and the cash system was lifted. Physical security also needs consideration to be ensured because data protection was not seen during the audit as many files and documents were seen on the table which creates threat opportunities to be stolen and might be a big loss as well as a loss of confidential data. During our audit, the management was also seen to be involved in some sort of deficiencies because despite written rules and regulations tangible assets were not verified either through invoices or physically to ensure they worth the value that is being recorded in the accounts.

References Niktba, A. a. A. A., 2015. The effect of audit evidence on the auditors report, international journal of accounting research,. 42(2177) ed. chicago: ,. Siam, W. a. M. A., (2016). The impact of management objectivity in jordanian companies on audit planning and evidence collection. 4(6) ed. ,: Archives of business research. Suryanto, T., 2015. Quality Auditing in Banking Industry,. 271-279, ed. s.l.:ICITB.

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