QUESTION 2

a) Analytical procedure is one of the methods of evidence gathering. With reference to ISA 520, the term 'analytical procedures' means evaluations of financial information through analysis of plausible relationships among both financial and non-financial data.

Required:

In relation to analytical procedure, clarify why understanding the client's industry and business, assessing the entity's ability to continue as a going concern and indicating the presence of possible misstatements in the financial statements are crucial in evidence gathering.

b) For the following five types of evidence please provide ONE (1) audit procedure for each type.

Documentation

Recalculation

Observation

Physical examination

Analytical procedures

c) ISA 500th Paragraph A26-A33: Reliability of Evidence refers to the degree to which evidence can be believable or worthy of trust. If evidence is considered reliable it is a great help in persuading the auditor that financial statements are fairly stated.

Required:

Identify TWO (2) characteristics that determine the reliability of evidence and for each characteristic, provide one example of a type of evidence that is likely to be reliable.