VIETNAMESE STANDARDS ON AUDITING
STANDARD No. 500
AUDIT EVIDENCE
(Issued in pursuance of the Finance Minister’s Decision No. 219/2000/QD-BTC dated 29 December 2000)
GENERAL PROVISIONS
01. This standard aims to prescribe the basic principles and procedures and guide the ways of applying the basic principles and procedures to the quantity and quality of auditing evidences to be obtained when auditing financial reports.
02. The auditors and auditing companies shall have to adequately obtain the appropriate auditing evidences for use as basis to state their opinions on the financial reports of the audited units.
03. This standard shall apply to the audit of financial reports and also to the audit of other financial information and relevant services of the auditing companies.
The auditors and auditing companies shall have to abide by the provisions of this standard in the process of obtaining and processing the auditing evidences.
The audited units (customers) and the parties using the auditing results must have necessary knowledge of this standard for coordination in work and the handling of relations related to the process of supplying and obtaining the auditing evidences.
04. The auditing evidences shall be obtained through the proper combination between Test of control and Substantive procedures procedures. In a number of cases, the auditing evidences can only be obtained through Substantive proceduress.
Terms used in this standard shall be understood as follows:
05. Auditing evidences mean all materials and information obtained by auditors and related to the audit and on the basis of such information the auditors shall formulate their opinions.
The auditing evidences include accounting materials, vouchers and books, the financial reports and materials and information from other sources.
06. Test of control (control system test) means the test conducted to obtain auditing evidences on the conformability and efficient operation of the accounting system and the internal control system.
07. Substantive procedures (substantive test) means the test conducted to obtain auditing evidences related to financial reports, aiming to detect key errors which affect the financial reports. "Substantive proceduress" shall include:
a/ Test of details of transactions and balances;
b/ Analytical process.
CONTENTS OF THE STANDARD
Adequate and appropriate auditing evidences
08. The auditors shall have to adequately obtain the appropriate auditing evidences for each kind of their opinion. The "adequacy" and "appropriateness" must always go hand in glove and shall apply to the auditing evidences obtained from Test of controls and Substantive procedures. "Adequacy" is the criteria indicating the quantity of auditing evidences. "Appropriateness" is the criteria indicating the quality and reliability of the auditing evidences. Usually, the auditors shall base themselves more on the evidences of critical and persuasive character than on evidences of affirmative character. The auditing evidences are often obtained from various sources and in various forms, serving as basis for the same database.
09. In the course of formulating their opinions, the auditors must not necessarily check all available information. The auditors may make conclusions on the account balances, economic operations or internal control systems on the basis of sampling test by the statistical method or personal judgment.
10. The auditors’ assessment of the adequacy and appropriateness of the auditing evidences largely depends on:
. The nature, content and extent of the potential risks of the whole financial report, of each account balance or each type of operation;
. The accounting system, the internal control system and the evaluation of controlled risks;
. The importance of the inspected clauses and items;
. Experiences from previous tests;
. Results of auditing procedures, including detected errors or frauds;
. The sources and reliability of materials and information.
11. When obtaining auditing evidences from Test of controls, the auditors shall have to examine the adequacy and appropriateness of the auditing evidences which serve as basis for their assessment of controlled risks.
12. Auditors should obtain auditing evidences from the accounting system and the internal control system in terms of:
Designing: The accounting system and the internal control system are designed in a way so as to be able to ward off, detect and correct key errors;
Implementation: The accounting system and the internal control system exist and operate efficiently throughout the period of examination.
13. When obtaining auditing evidences from Substantive procedures, the auditors shall have to examine the adequacy and appropriateness of the evidences obtained from Substantive proceduress together with evidences obtained from Test of controls with a view to confirming the database of the financial reports.
14. Database of financial reports means the basis of clauses, items and information presented in the financial reports, which the directors (of the heads) of the units have the responsibility to elaborate on the basis of the prescribed standards and accounting regimes, which must be expressed clearly or with grounds for each index in the financial reports.
The database of a financial report must meet the following criteria:
a/ Existence: An asset or a liability reflected in the unit’s financial report must actually exist (availability) at the time of making the report;
b/ Rights and duties: An asset or a liability reflected in the unit’s financial report must have the ownership right or liability to return at the time of making the report;
c/ Occurrence: An operation or an event, which is already recorded, must occur and relate to the unit during the period of examination;
d/ Adequacy: All assets, liabilitys, operations or transactions, which have occurred and related to financial reports must be reported fully with all relevant events;
e/ Assessment: An asset or a liability is recorded according to appropriate value on the basis of existing standards and accounting regimes (or acknowledged);
f/ Accuracy: An operation or an event is inscribed strictly according to its value, turnover or expenditures are acknowledged according to prescribed periods, correct clauses and items and mathematically correct.
g/ Presentation and disclosure: Clauses and items are classified, expressed and announced in conformity with the existing accounting standards and regime (or accepted).
15. The auditing evidences must be obtained for each database of a financial report. Evidences related to a database (such as the actual existence of goods in stock) can not make up for the lack of evidences related to other databases (such as the value of such stocked goods). The content, order and scope of Substantive proceduress vary according to each database. Experiments may supply auditing evidences for various databases at a time (like the recovery of collectible amounts may supply evidences for the actual existence and value of such collectible amounts).
16. The reliability of auditing evidences depends on their sources (inside or outside), forms (image, documents or voices) and each specific case. The evaluation of the reliability of auditing evidences rely on the following principles:
. Evidences originating from outside the units are more reliable than evidences originating from the inside;
. Evidences originating from inside the units shall be more reliable when the accounting system and the internal control system operate efficiently;
. Evidences obtained by auditors themselves are more reliable than evidences supplied by units;
. Evidences in forms of documents and images are more reliable than evidences recorded verbally.
17. Auditing evidences shall be more convincing when they are confirmed by information from various sources and in various forms. In this case, the auditors may have higher reliability for auditing evidences than cases where information are obtained from separate evidences. On the contrary, where the evidences from this source contradict with evidences from other sources, the auditors shall have to determine procedures for necessary supplementary test to solve the above-said contradiction.
18. In the auditing process, the auditors must take into account the relationship between the expenses for the obtaining of auditing evidences and the profits gained from such information. Arising difficulties and expenses for obtaining evidences must not be the reasons for ignoring a number of necessary test procedures.
19. When having doubts about databases which may greatly affect the financial reports, the auditors shall have to obtain more auditing evidences to get rid of such doubts. If unable to adequately obtain appropriate evidences, the auditors shall have to give their opinions of whether to accept them partially or not to give any comments.
Methods of obtaining auditing evidences
20. The auditors shall obtain auditing evidences by the following methods: examination, observation, investigation, certification, calculation and analytical process. The application of these methods depends partially on the time of obtaining auditing evidences.
21. Examination: means the scrutiny of accounting vouchers and books, financial reports and relevant documents or the test of tangible assets. The above-said examination supply evidences of high or low reliability depending on the contents and sources of the evidences and on the effectiveness of the internal control system for the process of treating such documents. Four following major sources of documents shall supply the auditors with evidences of varied reliability:
. Documents compiled and kept by the third party;
. Documents compiled by the third party and kept by the audited units;
. Documents compiled by the audited units and kept by the third party;
. Documents compiled and kept by the audited units.
The test of tangible assets shall supply reliable evidences on the actual existence of the assets, which are, however, not necessary the reliable evidences on the ownership and value of such assets.
22. Observation: means the monitoring of a phenomenon, a process or a procedure performed by other people (Example: Auditors observe the actual inventory or the control procedures carried out by units’).
23. Investigation: means the search for information from knowledgeable people inside and outside the units. The investigation carried out by officially sending documents, interviews or exchanges of investigation results will supply auditors with information not yet available, or supplementary information for the consolidation of already obtained evidences.
24. Certification: means the reply to a request for the supply of information aiming to verify again the information already available in the accounting documents (Example: Auditors request the units to send letters to customers for direct verification of the balances of collectible amounts of the customers’).
25. Calculation: means the examination of mathematical accuracy of data in the accounting vouchers and books, financial reports and other relevant documents or the independent calculation by auditors.
26. Analytical process: means the analysis of data, information and important rates thereby to find out trends and fluctuations and to find out relations contradicting with other relevant information or the big disparity with the anticipated value./.