Sufficient and Appropriate Audit Evidence. SA Express

Sufficient and Appropriate Audit Evidence

It is trite that the objective of the auditor is to design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion. Audit evidence is necessary to support the auditor’s opinion and report. What is not addressed in any auditing standard or literature is at what point in the audit process can an auditor claim that he/she is unable to obtain the necessary audit evidence? It is important to contextualise the audit process in that an audit needs to be conducted within a reasonable period of time and at a reasonable cost. The matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative or to be satisfied with audit evidence that is less than persuasive. Therefore, there is an expectation by users of financial statements that the auditor will form an opinion on the financial statements within a reasonable period of time and at a reasonable cost, recognizing that it is impracticable to address all information that may exist or to pursue every matter exhaustively on the assumption that information is in error or fraudulent until proved otherwise. Because of the inherent limitations of an audit, there is an unavoidable risk that some material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with ISAs. However the inherent limitations of an audit are not a justification for the auditor to be satisfied with less than persuasive audit evidence. Whether the auditor has performed an audit in accordance with ISAs is determined by the audit procedures performed in the circumstances, the sufficiency and appropriateness of the audit evidence obtained as a result thereof and the suitability of the auditor’s report based on an evaluation of that evidence in light of the overall objectives of the auditor.

The auditor is required to use the objectives to evaluate whether sufficient appropriate audit evidence has been obtained in the context of the overall objectives of the auditor. If as a result the auditor concludes that the audit evidence is not sufficient and appropriate, then the auditor may follow one or more of the following approaches to meeting the requirement of paragraph 21(b):

• Evaluate whether further relevant audit evidence has been, or will be, obtained as a result of complying with other ISAs;


• Extend the work performed in applying one or more requirements; or


• Perform other procedures judged by the auditor to be necessary in the circumstances.

Where none of the above is expected to be practical or possible in the circumstances, the auditor will not be able to obtain sufficient appropriate audit evidence and is required by the ISAs to determine the effect on the auditor’s report or on the auditor’s ability to complete the engagement. Whether an objective has been achieved is a matter for the auditor’s professional judgment. That judgment takes account of the results of audit procedures performed in complying with the requirements of the ISAs, and the auditor’s evaluation of whether sufficient appropriate audit evidence has been obtained and whether more needs to be done in the particular circumstances of the audit to achieve the objectives stated in the ISAs. Accordingly, circumstances that may give rise to a failure to achieve an objective include those that:

• Prevent the auditor from complying with the relevant requirements of an ISA.


• Result in its not being practicable or possible for the auditor to carry out the additional audit procedures or obtain further audit evidence as determined necessary from the use of the objectives in accordance with paragraph 21, for example, due to a limitation in the available audit evidence.

Information that may be used as audit evidence may have been prepared by an expert employed or engaged by the entity. Audit evidence comprises both information that supports and corroborates management’s assertions, and any information that contradicts such assertions. In addition, in some cases, the absence of information is used by the auditor, and therefore, also constitutes audit evidence. Most of the auditor’s work in forming the auditor’s opinion consists of obtaining and evaluating audit evidence.

Obtaining more audit evidence, however, may not compensate for its poor quality. The greater the risks of material misstatement the auditor believes exists, the less the detection risk that can be accepted and, accordingly, the more persuasive the audit evidence required by the auditor. Because there are inherent limitations of an audit which result in most of the audit evidence on which the auditor draws conclusions and bases the auditor’s opinion being persuasive rather than conclusive. Nevertheless, a belief that management and those charged with governance are honest and have integrity does not relieve the auditor of the need to maintain professional skepticism or allow the auditor to be satisfied with less than persuasive audit evidence when obtaining reasonable assurance.

In the end the auditor has an obligation to make their own independent judgment as to the value of the provision and this context engage their own expert. There is reason to believe that not all alternative audit procedures have been exhausted until such time an auditor has consulted an expert an expert as required by International Standard on Auditing (ISA) 620 - Using the Work of an Auditor’s Expert.

The question arises as to what expert would Nkonki consult. The only expert would one that is an expert in accounting records and its very clear than an auditor cannot at the same time do an audit and fix the accounting records.

Threats to independence are created when a member of the audit team has a close relationship with a person who is not an immediate or close family  member, but who is a director or officer or an employee in a position to exert  significant influence over the preparation of the client’s accounting records or  the financial statements on which the firm will express an opinion

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the applicable financial reporting framework. These responsibilities include: Originating or changing journal entries, or determining the account classifications of transactions; and Preparing or changing source documents or originating data, in electronic or other form, evidencing the occurrence of a transaction (for example,  purchase orders, payroll time records, and customer orders).

If Nkonki used an expert to fix the accounting records - the firm assumes a management responsibility for the client. This would have resulted in a breach of the Companies Act and the Auditing Profession Act.