Document ID: chunk:federal_register_of_legislation:F2022C01189:reg:7:p9
Version: federal_register_of_legislation:F2022C01189
Segment Type: reg
Provision Reference: reg 7 (pt 9/21)
Character Range: 32745–35922

on the effectiveness of the controls over their production.  An example of inspection used as a test of controls is inspection of records for evidence of authorisation.

A19.         Some documents represent direct audit evidence of the existence of an asset, for example, a document constituting a financial instrument such as a share or bond.  Inspection of such documents may not necessarily provide audit evidence about ownership or value.  In addition, inspecting an executed contract may provide audit evidence relevant to the entity's application of accounting policies, such as revenue recognition.

A20.         Inspection of tangible assets may provide reliable audit evidence with respect to their existence, but not necessarily about the entity's rights and obligations or the valuation of the assets.  Inspection of individual inventory items may accompany the observation of inventory counting.

Observation

A21.         Observation consists of looking at a process or procedure being performed by others, for example, the auditor's observation of inventory counting by the entity's personnel, or of the performance of controls.  Observation provides audit evidence about the performance of a process or procedure, but is limited to the point in time at which the observation takes place, and by the fact that the act of being observed may affect how the process or procedure is performed.  See ASA 501 for further guidance on observation of the counting of inventory.[13]

External Confirmation

A22.         An external confirmation represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium.  External confirmation procedures frequently are relevant when addressing assertions associated with certain account balances and their elements.  However, external confirmations need not be restricted to account balances only.  For example, the auditor may request confirmation of the terms of agreements or transactions an entity has with third parties; the confirmation request may be designed to ask if any modifications have been made to the agreement and, if so, what the relevant details are.  External confirmation procedures also are used to obtain audit evidence about the absence of certain conditions, for example, the absence of a "side agreement" that may influence revenue recognition.  See ASA 505 for further guidance.[14]

Re‑calculation

A23.         Re‑calculation consists of checking the mathematical accuracy of documents or records.  Re‑calculation may be performed manually or electronically.

Re‑performance

A24.         Re‑performance involves the auditor's independent execution of procedures or controls that were originally performed as part of the entity's internal control.

Analytical Procedures

A25.         Analytical procedures consist of evaluations of financial information through analysis of plausible relationships among both financial and non‑financial data.  Analytical procedures also encompass such investigation as is necessary of identified fluctuations or relationships that are inconsistent