Introduction

1. The purpose of this InternationalCambodian Standard on Auditing (ICSA) is to establish standards and provide guidance on the quantity and quality of audit evidence to be obtained when auditing financial statements, and the procedures for obtaining that audit evidence.
2. The auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion.
3. Audit evidence is obtained from an appropriate mix of tests of control and substantive procedures. In some circumstances, evidence may be obtained entirely from substantive procedures.
4. 'Audit evidence' means the information obtained by the auditor in arriving at the conclusions on which the audit opinion is based. Audit evidence will comprise source documents and accounting records underlying the financial statements and corroborating information from other sources.
5. 'Tests of control' means tests performed to obtain audit evidence about the suitability of design and effective operation of the accounting and internal control systems.
6. 'Substantive procedures' means tests performed to obtain audit evidence to detect material misstatements in the financial statements, and are of two types:
(a) tests of details of transactions and balances; and
(b) analytical procedures.
Sufficient Appropriate Audit Evidence

7. Sufficiency and appropriateness are interrelated and apply to audit evidence obtained from both tests of control and substantive procedures. Sufficiency is the measure of the quantity of audit evidence; appropriateness is the measure of the quality of audit evidence and its relevance to a particular assertion and its reliability. Ordinarily, the auditor finds it necessary to rely on audit evidence that is persuasive rather than conclusive and will often seek audit evidence from different sources or of a different nature to support the same assertion.
8. In forming the audit opinion, the auditor does not ordinarily examine all of the information available because conclusions can be reached about an account balance, class of transactions or control by way of using judgmental or statistical sampling procedures.
9. The auditor’s judgment as to what is sufficient appropriate audit evidence is influenced by such factors as the:
· Auditor’s assessment of the nature and level of inherent risk at both the financial statement level and the account balance or class of transactions level.
· Nature of the accounting and internal control systems and the assessment of control risk.
· Materiality of the item being examined.
· Experience gained during previous audits.
· Results of audit procedures, including fraud or error which may have been found.
· Source and reliability of information available.
10. When obtaining audit evidence from tests of control, the auditor should consider the sufficiency and appropriateness of the audit evidence to support the assessed level of control risk.
11. The aspects of the accounting and internal control systems about which the auditor would obtain audit evidence are:
(a) design: the accounting and internal control systems are suitably designed to prevent and/or detect and correct material misstatements; and
(b) operation: the systems exist and have operated effectively throughout the relevant period.
12. When obtaining audit evidence from substantive procedures, the auditor should consider the sufficiency and appropriateness of audit evidence from such procedures together with any evidence from tests of control to support financial statement assertions.
13. Financial statement assertions are assertions by management, explicit or otherwise, that are embodied in the financial statements. They can be categorized as follows:
(a) existence: an asset or a liability exists at a given date;
(b) rights and obligations: an asset or a liability pertains to the entity at a given date;
(c) occurrence: a transaction or event took place which pertains to the entity during the period;
(d) completeness: there are no unrecorded assets, liabilities, transactions or events, or undisclosed items;
(e) valuation: an asset or liability is recorded at an appropriate carrying value;
(f) measurement: a transaction or event is recorded at the proper amount and revenue or expense is allocated to the proper period; and
(g) presentation and disclosure: an item is disclosed, classified, and described in accordance with the applicable financial reporting framework and Standards.
14. Ordinarily, audit evidence is obtained regarding each financial statement assertion. Audit evidence regarding one assertion, for example, existence of inventory, will not compensate for failure to obtain audit evidence regarding another, for example, valuation. The nature, timing and extent of substantive procedures will vary depending on the assertions. Tests can provide audit evidence about more than one assertion, for example, collection of receivables may provide audit evidence regarding both existence and valuation.
15. The reliability of audit evidence is influenced by its source: internal or external, and by its nature: visual, documentary or oral. While the reliability of audit evidence is dependent on individual circumstance, the following generalizsations will help in assessing the reliability of audit evidence:
· Audit evidence from external sources (for example, confirmation received from a third party) is more reliable than that generated internally.
· Audit evidence generated internally is more reliable when the related accounting and internal control systems are effective.
· Audit evidence obtained directly by the auditor is more reliable than that obtained from the entity.
· Audit evidence in the form of documents and written representations is more reliable than oral representations.
16. Audit evidence is more persuasive when items of evidence from different sources or of a different nature are consistent. In these circumstances, the auditor may obtain a cumulative degree of confidence higher than would be obtained from items of audit evidence when considered individually. Conversely, when audit evidence obtained from one source is inconsistent with that obtained from another, the auditor determines what additional procedures are necessary to resolve the inconsistency.
17. The auditor needs to consider the relationship between the cost of obtaining audit evidence and the usefulness of the information obtained. However, the matter of difficulty and expense involved is not in itself a valid basis for omitting a necessary procedure.
18. When in substantial doubt as to a material financial statement assertion, the auditor would attempt to obtain sufficient appropriate audit evidence to remove such doubt. If unable to obtain sufficient appropriate audit evidence, however, the auditor should express a qualified opinion or a disclaimer of opinion.
Procedures for Obtaining Audit Evidence

19. The auditor obtains audit evidence by one or more of the following procedures: inspection, observation, inquiry and confirmation, computation and analytical procedures. The timing of such procedures will be dependent, in part, upon the periods of time during which the audit evidence sought is available.
Inspection
20. 20. Inspection consists of examining records, documents, or tangible assets. Inspection of records and documents provides audit evidence of varying degrees of reliability depending on their nature and source and the effectiveness of internal controls over their processing. Three major categories of documentary audit evidence, which provide different degrees of reliability to the auditor, are:

(a) documentary audit evidence created and held by third parties;
(b) documentary audit evidence created by third parties and held by the entity; and
(c) documentary audit evidence created and held by the entity.
Inspection of tangible assets provides reliable audit evidence with respect to their existence but not necessarily as to their ownership or value.
Observation
21. Observation consists of looking at a process or procedure being performed by others, for example, the observation by the auditor of the counting of inventories by the entity’s personnel or the performance of control procedures that leave no audit trail.
Inquiry and Confirmation
22. Inquiry consists of seeking information of knowledgeable persons inside or outside the entity. Inquiries may range from formal written inquiries addressed to third parties to informal oral inquiries addressed to persons inside the entity. Responses to inquiries may provide the auditor with information not previously possessed or with corroborative audit evidence.
23. Confirmation consists of the response to an inquiry to corroborate information contained in the accounting records. For example, the auditor ordinarily seeks direct confirmation of receivables by communication with debtors.
Computation
24. Computation consists of checking the arithmetical accuracy of source documents and accounting records or of performing independent calculations.
Analytical Procedures
25. Analytical procedures consist of the analysis of significant ratios and trends including the resulting investigation of fluctuations and relationships that are inconsistent with other relevant information or deviate from predicted amounts.
Public Sector Perspective

1. When carrying out audits of public sector entities, the auditor will need to take into account the legislative framework and any other relevant regulations, ordinances or ministerial directives which affect the audit mandate and any special auditing requirements. Such requirements might affect, for example, the extent of the auditor’s discretion in establishing materiality and judgments on the nature and scope of audit procedures to be applied. Paragraph 9 of this ICSA has to be applied only after giving consideration to such restrictions on the auditor’s judgment.