GAAS Standard of Audit Fieldwork

The third generally accepted standard of audit fieldwork requires that auditors obtain sufficient, competent audit evidence to afford a reasonable basis for an opinion regarding the financial statements under examination. In considering what constitutes sufficient, competent audit evidence, a distinction should be made between underlying accounting data and all corroborating information available to the auditor. What presumptions can be made about the following?

The relative competence of evidence obtained from external and internal sources.

The role of internal control with respect to internal evidence produced by a client’s data processing system.

The relative persuasiveness of auditor observation and recalculation evidence compared to external, external-internal, and internal documentary evidence.

Ans:

1. The relative competence of evidence obtained from external and internal sources –

Evidences obtained from external and internal sources both have their relevance at various points of examination. For eg: Bank statements are more reliable external evidence when compared to internal documents provided by management.

So, if the source is reliable and trustworthy then the evidences from external sources are relatively more competent than that from internal sources.

2. The role of internal control with respect to internal evidence produced by a client’s data processing system-

Firstly, the auditor must check whether the company has good internal controls or not. He should understand the internal control processes of the organization and if he is satisfied that the internal controls are good in the organization then the evidences produced by a client’s data processing system can be considered reliable and competent and based on that the auditor can express an opinion on the financial statements.

3. The relative persuasiveness of auditor observation and recalculation evidence compared to external, external-internal, and internal documentary evidence:

In this case the auditor must check whether the evidence provided externally differs from the internal evidences and documents. In that case, if external evidences are more trustworthy, then the auditor should express his opinion based on external evidences.

In case, the internal controls of the organization is good and the chances of manipulation of the data, documents and evidences is very less, then the auditor should act accordingly and express his opinion on the basis of internal evidences.

CONCLUSION

Thus, to understand whether the evidence is competent, sufficient and trustworthy, the auditor has to properly examine the evidences and then express a true and fair opinion on the financial statements.