Subsection 2: Certification of accounts

The professional practice standard relating to the probative nature of the evidence collected, approved by the Minister of Justice, is set out below:

PROFESSIONAL PRACTICE STANDARD "PROBABILITY OF THE EVIDENCE COLLECTED"

Introduction

l. Throughout the audit of the financial statements, the statutory auditor collects items that enable it to reach conclusions on which to base its opinion on the financial statements.

2. The purpose of this standard is to define the evidential nature of the elements collected by the statutory auditor in the course of auditing the accounts and the audit techniques that enable him to collect them.

Definition

3. Assertions: criteria whose fulfilment conditions the regularity, fairness and true and fair view of the accounts.

Evidence

4. The information gathered by the statutory auditor includes information gathered during the audit, information gathered during audits of previous financial years and during other engagements, or information gathered in connection with the acceptance or continuation of the engagement.

5. These elements provide the statutory auditor with evidence or presumptions as to compliance with one or more assertions. This evidence must be sufficient and appropriate to enable him to base his opinion on the accounts.

6. Appropriateness is a function of the quality of the evidence collected, i.e. its reliability and relevance.

Sufficiency is assessed in relation to the quantity of evidence collected. The quantity of items to be collected depends on the risk of material misstatement but also on the quality of the items collected. The degree of reliability of the items collected depends on their origin, their nature and the particular circumstances in which they were collected. Thus, in principle:

- items collected from external sources are more reliable than those from internal sources. For this reason, when the statutory auditor uses information produced by the entity to carry out audit procedures, he collects elements concerning its accuracy and completeness;

- elements collected from internal sources are all the more reliable if internal control is effective ;

- elements obtained directly by the statutory auditor, for example during a physical observation, are more reliable than those obtained through requests for information;

- elements collected are more reliable when they are supported by documents;

- finally, elements collected consisting of original documents are more reliable than those consisting of copies.

7. As part of his assessment of the reliability of the items collected, the statutory auditor keeps a critical eye out for indications that could call into question their validity. In the event of doubt, he conducts further investigations.

Thus, when an item collected is inconsistent with another, the statutory auditor determines the additional audit procedures to be implemented to elucidate this inconsistency.

8. In forming his opinion, the statutory auditor is not required to examine all the information available in the entity insofar as he can generally conclude on the basis of sampling approaches and other means of selecting items to be tested.

Assertions and collection of items

9. The items collected provide the statutory auditor with evidence or presumptions as to whether one or more of the following assertions are met:

Assertions concerning the flows of transactions and events that occurred during the period:

- reality: the transactions and events that have been recorded occurred and relate to the entity;

- completeness: all transactions and events that should have been recorded are recorded;

- measurement: the amounts and other data relating to transactions and events have been correctly recorded;

- cut-off: transactions and events have been recorded in the correct period;

- classification: transactions and events have been recorded in the correct accounts.

Assertions concerning the balances of the accounts at the end of the period:

- existence: the assets and liabilities exist;

- rights and obligations: the entity holds and controls the rights to the assets, and the liabilities correspond to the entity's obligations;
- completeness: all assets and liabilities that should have been recorded have been recorded;

- measurement and allocation: assets and liabilities are recorded in the accounts for appropriate amounts and all adjustments resulting from their measurement or allocation are correctly recorded.

Assertions concerning the presentation of the accounts and the information provided in the notes to the accounts:

- reality and rights and obligations: the events, transactions and other items provided have occurred and relate to the entity;

- completeness: all the information relating to the notes to the accounts required by the accounting framework has been provided;

- presentation and intelligibility: financial information is presented and described appropriately, and the information given in the notes to the accounts is clearly presented;

- measurement and valuation: financial and other information is given faithfully and for the correct amounts.

Control techniques

10. In order to collect the elements necessary for the audit of the accounts, the statutory auditor chooses from the following techniques:

- inspection of records or documents, which consists of examining records or documents, either internal or external, in paper form, electronic form or other media;

- inspection of tangible assets, which corresponds to a physical check of tangible assets;

- physical observation, which consists of examining the way in which a procedure is carried out within the entity;

- request for information, which may be addressed to persons internal or external to the entity ;

- request for confirmation from third parties, which consists in obtaining a statement directly addressed to the statutory auditor from a third party concerning one or more items of information;

- verification of a calculation;

- re-performance of controls, which relates to controls originally performed by the entity;

- analytical procedures, which consist in assessing financial information on the basis of:

- their correlation with other information, whether or not derived from the accounts, or with previous, subsequent or forecast data for the entity or similar entities; and

- the analysis of significant variations or unexpected trends.

11. These audit techniques may be used alone or in combination at all stages of the audit of the financial statements.