The PCAOB has published staff guidance intended to help auditors when gathering audit evidence.

Staff Guidance – Insights for Auditors Evaluating Relevance and Reliability of Audit Evidence Obtained From External Sources also addresses the relationship between the quality and quantity of audit evidence. The guide was published on Oct. 7, 2021.

Currently, audit evidence is on the board’s research agenda.

Audit evidence is information that the auditor uses to ultimately opine on whether the financial statements of the company are fairly stated or not.

This comes as there have been advances in technology, which auditors increasingly use, and they have expanded their use of external data.

PCAOB Auditing Standard (AS) 1105, Audit Evidence, sets requirements for designing and performing audit procedures to obtain sufficient and appropriate evidence. It also explains what constitutes audit evidence.

According to the research agenda, using emerging technologies can affect how auditors assess the accuracy, completeness, relevance, and reliability of evidence.

Moreover, using more information from sources outside of the company has the potential to cause diversity in practice, the PCAOB said.

The seven-page staff guide explains that “sufficiency is the measure of the quantity of audit evidence, and appropriateness is the measure of its quality.”

“To be appropriate, audit evidence must be both relevant and reliable in providing support for the auditor’s conclusions,” the guide states. “The concepts of sufficiency and appropriateness of audit evidence are interrelated – the quantity of audit evidence needed is affected by both the risk of material misstatement (in the audit of financial statements) or the risk associated with the control (in the audit of internal control over financial reporting) and the quality of the evidence (i.e., its relevance and reliability).”

How much evidence is needed depends on the purpose of the audit procedure. And in the staff’s view, auditors should get more persuasive evidence on substantive procedures and control tests than risk assessment procedures, for example.

“However, obtaining more of the same type of audit evidence cannot compensate for the poor quality of that evidence,” the staff guidance states. “Overall, as the risk of material misstatement increases, the amount of evidence that the auditor should obtain also increases.” The guide said that the staff will continue to study the topic and do outreach. It is unclear whether the project will move to the standard-setting agenda.

Meanwhile, the AICPA’s Auditing Standards Board (ASB) in July 2020 issued Statement on Auditing Standards No. (SAS) 142, Audit Evidence, to address various audit issues that have cropped up in a fast-changing business environment.

The ASB writes standards for audits of private companies.

Contact our team for more information on this topic, or to learn more about Baker Tilly's Accounting and Assurance Services. We have partnered with Thomson Reuters to issue our monthly SEC Accounting Update. © 2021 Thomson Reuters/Tax & Accounting. All Rights Reserved.

Diverse group of college students walking to community college class
Next up

Leveraging sound governance and risk management practices to drive fiscal resiliency for community colleges