Guide to Using International Standards on Auditing in - IFAC

125
<strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts
Exhibit 10.4-3
Questions <strong>to</strong> Address
Is the Data
Sufficiently
Reliable for
Achieving the
Audit Objective?
Is the data obtained from sources within the entity, or from independent sources
outside the entity?
• The reliability of audit evidence is increased (with some exceptions) when it is
obtained from independent sources outside the entity.
Is data from sources within the entity developed by persons not directly responsible
for its accuracy?
• If so, consider further procedures <strong>to</strong> check accuracy.
Was the data developed under a reliable system with adequate internal control?
Is broad industry data available for comparison with the entity’s data?
Was the data subject <strong>to</strong> audit testing in the current or prior periods?
Were the audi<strong>to</strong>r’s expectations regarding recorded amounts developed from a
variety of sources?
To avoid unwarranted reliance on a source of data used, the audi<strong>to</strong>r would perform substantive tests of the
underlying data <strong>to</strong> determine whether it is sufficiently reliable, or test whether internal controls over the
data’s completeness, existence, and accuracy are operating effectively.
In some cases, non-financial data (for example, quantities and types of items produced) will be used in
performing analytical procedures. Accordingly, the audi<strong>to</strong>r needs an appropriate basis for determining
whether the non-financial data is sufficiently reliable for the purposes of performing the analytical
procedures.
Differences from Expectations
When differences are identified between recorded amounts and the audi<strong>to</strong>r’s expectations, the audi<strong>to</strong>r
would consider the level of assurance that the procedures are intended <strong>to</strong> provide and the audi<strong>to</strong>r’s
performance materiality. The amount of the acceptable difference without investigation would, in any event,
need <strong>to</strong> be less than performance materiality.
Procedures used for the investigation could include:
• Reconsidering the methods and fac<strong>to</strong>rs used in forming the expectation;
• Making inquiries of management regarding the causes of differences from the audi<strong>to</strong>r’s expectations
and assessing management’s responses, taking in<strong>to</strong> account the audi<strong>to</strong>r’s understanding of the
business obtained during the course of the audit; and
• Performing other audit procedures <strong>to</strong> corroborate management’s explanations.
As a result of this investigation, the audi<strong>to</strong>r may conclude that:
• Differences between the audi<strong>to</strong>r’s expectations and recorded amounts do not represent misstatements; or
• Differences may represent misstatements, and further audit procedures need <strong>to</strong> be performed <strong>to</strong> obtain
sufficient appropriate audit evidence as <strong>to</strong> whether a material misstatement does or does not exist.