Document ID: chunk:federal_register_of_legislation:F2022C01189:reg:7:p11
Version: federal_register_of_legislation:F2022C01189
Segment Type: reg
Provision Reference: reg 7 (pt 11/21)
Character Range: 38564–41693

connection with, or bearing upon, the purpose of the audit procedure and, where appropriate, the assertion under consideration.  The relevance of information to be used as audit evidence may be affected by the direction of testing.  For example, if the purpose of an audit procedure is to test for overstatement in the existence or valuation of accounts payable, testing the recorded accounts payable may be a relevant audit procedure.  On the other hand, when testing for understatement in the existence or valuation of accounts payable, testing the recorded accounts payable would not be relevant, but testing such information as subsequent disbursements, unpaid invoices, suppliers' statements, and unmatched receiving reports may be relevant.

A32.         A given set of audit procedures may provide audit evidence that is relevant to certain assertions, but not others.  For example, inspection of documents related to the collection of receivables after the period end may provide audit evidence regarding existence and valuation, but not necessarily cut‑off.  Similarly, obtaining audit evidence regarding a particular assertion, for example, the existence of inventory, is not a substitute for obtaining audit evidence regarding another assertion, for example, the valuation of that inventory.  On the other hand, audit evidence from different sources or of a different nature may often be relevant to the same assertion.

A33.         Tests of controls are designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level.  Designing tests of controls to obtain relevant audit evidence includes identifying conditions (characteristics or attributes) that indicate performance of a control, and deviation conditions which indicate departures from adequate performance.  The presence or absence of those conditions can then be tested by the auditor.

A34.         Substantive procedures are designed to detect material misstatements at the assertion level.  They comprise tests of details and substantive analytical procedures.  Designing substantive procedures includes identifying conditions relevant to the purpose of the test that constitute a misstatement in the relevant assertion.

Reliability

A35.         The reliability of information to be used as audit evidence, and therefore of the audit evidence itself, is influenced by its source and its nature, and the circumstances under which it is obtained, including the controls over its preparation and maintenance where relevant.  Therefore, generalisations about the reliability of various kinds of audit evidence are subject to important exceptions.  Even when information to be used as audit evidence is obtained from sources external to the entity, circumstances may exist that could affect its reliability.  For example, information obtained from a source independent of the entity may not be reliable if the source is not knowledgeable, or a management's expert may lack objectivity.  While recognising that exceptions may exist, the following generalisations about the