Page 128 - CITP Review

In a financial audit, if the assessed level of risk is moderate, applying inquiry alone is ineffective in
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gathering sufficient evidence , and inspection or reperformance is over-auditing; observation is generally
the optimum level of procedure to gather the appropriate evidence. When the assessed level of risk is
high, observation alone is inadequate to gather sufficient evidence. Note that combining two or more
types of procedures has an additive effect on the end result of power.

Another consideration is the dynamic determination of the nature, timing, and extent (NTE) of audit
procedures. The NTE aspects of the audit process can all influence the reliability of the information that
is to be used as sufficient evidence. For financial audits, generally, the lower the detection risk required to
achieve an acceptable level of audit risk, the more persuasive and reliable the evidence must be. Exhibit
3-13 describes some useful ways to enhance the credibility of the NTE of procedures needed.

Exhibit 3-13 Evidence and nature, timing, and extent of procedures

Nature of evidence Timing of evidence (when) Extent of evidence
(source) (how much)

More persuasive and reliable More persuasive and reliable More persuasive and reliable
when when when

 Directly obtained by the  Obtained closer to the  Testing involves more
auditor time of the transactions individually significant
 Obtained from or valuations items
independent and  Obtained on an  Larger sample sizes are
knowledgeable outside unannounced or surprise used
sources basis  Lower acceptable
 Internally obtained when  Obtained through use of analytical variances are
controls are effective cutoff periods established
 Exists in documentary  Obtained throughout the  More disaggregation is
form rather than oral audited period for used in analytical
representation sampling procedures procedures
 Provided by original  Obtained through the use  Inquiries or confirmations
documents rather than of analytical procedures are corroborated by an
photocopies or facsimiles designed near the end of independent source
the audit

Sampling can be an asset to the audit or review; however, care must be taken in choosing the proper
statistical methodology and an optimal sample size. Sampling is also important in examining ITGCs.

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Note: Technical standards from the PCAOB and AICPA state that inquiry alone does not provide adequate
evidence for audit procedures period.

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