Management Notes

Reference Notes for Management

When is evidential matter, generally, considered sufficient?

When is evidential matter, generally, considered sufficient?


a) When it constitutes entire population
b) When it is enough to provide a basis for giving reasonable assurance regarding truthfulness
c) When it is objective and relevant
d) When auditor collects and evaluates it independently

The Correct Answer Is:

b) When it is enough to provide a basis for giving reasonable assurance regarding truthfulness

Correct Answer Explanation: b) When it is enough to provide a basis for giving reasonable assurance regarding truthfulness

Evidential matter in auditing refers to the information and data gathered by auditors to support their conclusions and opinions about financial statements. The sufficiency of evidential matter is a critical aspect of an auditor’s work, and option “b” accurately describes this concept.

When auditors assess the sufficiency of evidential matter, they aim to obtain enough reliable and relevant evidence to form a reasonable basis for their conclusions. This doesn’t mean they need to examine every single transaction or piece of data (as in option “a,” which mentions the entire population).

Instead, they need to gather enough evidence to provide “reasonable assurance” regarding the truthfulness of the financial statements.

Reasonable assurance doesn’t imply absolute certainty, but rather a high level of confidence that the financial statements are free from material misstatements. Auditors use professional judgment to determine the amount and type of evidence required based on factors like risk, materiality, and the nature of the business being audited.

Therefore, option “b” stands out as the correct choice because it aligns with the auditor’s objective to provide reasonable assurance.

Why the other answers are not correct:

a) “When it constitutes the entire population”:

This statement suggests that sufficiency in auditing is achieved when every single item within a population is examined. However, auditing every transaction or data point within a population is often impractical due to time constraints, cost considerations, and the sheer volume of data in larger organizations.

Auditors typically employ sampling techniques to assess a subset of data, making conclusions about the entire population based on this sample.

The sufficiency of evidence isn’t about examining everything but rather about obtaining an appropriate and representative sample that allows auditors to draw reliable conclusions. Relying on the entire population is unrealistic and unnecessary in most audit scenarios.

c) “When it is objective and relevant”:

Objectivity and relevance are undoubtedly critical aspects of evidential matter in auditing. Objective evidence is factual, verifiable, and unbiased, ensuring accuracy and reliability in the audit process. Relevant evidence pertains directly to the assertions being tested and supports the audit objective.

However, while objectivity and relevance contribute to the quality of evidence, they don’t solely determine sufficiency. Sufficiency is about the quantity and quality of evidence needed to support the auditor’s conclusions.

It involves judgment in determining how much evidence is necessary to provide a reasonable basis for forming an opinion on the financial statements.

d) “When the auditor collects and evaluates it independently”:

Independence is a fundamental principle in auditing as it ensures impartiality and integrity in the audit process. Auditors must maintain independence in both fact and appearance to provide unbiased opinions. Collecting and evaluating evidence independently from the client’s influence is crucial to maintain this independence.

However, while independence is crucial, it’s not the sole determinant of sufficiency in evidential matter. Sufficiency encompasses the adequacy of evidence gathered, considering its relevance, reliability, and the extent to which it supports the auditor’s conclusions.

Independence is a prerequisite for credibility, but it doesn’t define the sufficiency of evidence on its own.

In essence, while these aspects examining the entire population, objectivity, relevance, and independence are integral to the audit process, none singularly determines the sufficiency of evidential matter.

Sufficiency is a nuanced concept that involves a holistic assessment of the quantity, quality, and appropriateness of evidence gathered to support the auditor’s conclusions and opinions on financial statements.

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