Audit issues and trends to consider:

1. Corroborating evidence for client discussions

Enquiry is an audit procedure used extensively throughout the audit, in addition to other audit procedures. Evaluating responses to enquiries is an important part of the enquiry process. Responses to enquiries may provide new information or corroborative audit evidence, or information that differs significantly from other information already obtained, for example, information regarding the possibility of management override of controls. In some cases, responses provide a basis for the auditor to modify, or perform additional audit procedures.

Auditors often rely heavily on management responses and discussions, with very little corroboration of the information obtained in this manner. As the auditor must plan and perform the audit with professional scepticism, it is important to corroborate evidence that was obtained through enquiry for reliability and consistency with other evidence. Where responses obtained are inconsistent, the auditor must investigate the inconsistencies. The auditor must evaluate oral representations based on the understanding of the business, supporting documents provided to support responses, and other evidence obtained during the audit.

To corroborate enquiries about management’s intent, understanding management’s track record of carrying out its stated intentions, management’s stated reasons for choosing a particular course of action, and management’s ability to pursue a specific course of action may provide relevant information to corroborate the evidence obtained through enquiry.

In some instances, the auditor may consider it necessary to obtain written representations from management, in terms of ISA 580, to confirm responses to oral enquiries.

2. Business rationale for significant transactions

In monitoring and engagement quality reviews, it is often the case that auditors do not apply an appropriate level of professional scepticism when evaluating significant transactions. The auditor must recognise the possibility that a material misstatement, owing to fraud, could exist, despite past experience of honesty and integrity of management.

It is, therefore, crucial that the business rationale of significant transactions, including journal entries, are critically evaluated and the audit considerations clearly documented in the audit working papers.