Important definitions

Accounting records—An accounting record refers to the initial record of entries, supporting documents such as bills, payment details, checks, funds transfer receipts, spreadsheets, and other supporting documents.

Sufficient – the quantity of the audit evidence should be reasonable to support the audit report’s conclusion.

Appropriate—The quality of the audit evidence should be reliable and relevant to the audit. Information is more reliable when coming from a third-party source and more relevant when directly supporting the audit assertion under consideration.

Audit evidence – Information used by the auditor to reach an audit opinion. It includes details in the financial statement and the supporting documents/accounting records defined above.

Management expert– The person or organization hired by an audit client and coming with expertise other than audit & accounting.

Scope of ISA 500

This ISA applies to all aspects/areas of financial statement audit. It is the auditor’s responsibility to obtain sufficient and appropriate audit evidence to ensure the reliability of the audit opinion formed on the basis of audit evidence. If auditors remain unable to obtain sufficient and appropriate audit evidence, they will be required to generate qualified audit report when expected misstatement is material and adverse report when expected misstatement is material and pervasive.

Requirements

ISA 500 requires auditors to obtain sufficient and appropriate audit evidence by executing reasonable procedures.

Additionally, the auditor is required to ensure compliance with the following when using the work of others as audit evidence.

Using the work of a management expert—When using the work of a management expert, the auditor is required to ensure the following aspects.

1. Professionally evaluate the management expert’s experience, capability, qualifications, reputation, and competence in addition to objectivity.
2. Make reasonable efforts to understand the work performed by management experts.
3. Professionally evaluate the assertions that are satisfied with the work performed by management experts.

Using the work of an entity/audit client—When using the work of an audit client, the auditor is required to ensure the following aspects.

1. Ensure audit evidence is complete and accurate.
2. Analyze detailed aspects of the work and ensure it was sufficient to satisfy relevant assertions.

What if the auditor finds inconsistency/doubts in the audit evidence

Plan and perform additional audit procedures to ensure the matter was professionally handled, sufficient and appropriate audit evidence was obtained, and the effect of the matter was considered on the overall audit.

Wrap up

ISA 500 relates to audit evidence. The audit evidence should be sufficient and appropriate. If auditors intend to use the work of a management expert, they are required to evaluate the expert’s competence, objectivity, experience, and reputation and understand their work to be used as audit evidence.

If auditors use the work of the audit client, it should be complete and accurate and satisfy relevant audit assertions.

If an inconsistency is found in the audit evidence, the matter should be resolved via additional audit procedures.