Audit evidence definition
/What is Audit Evidence?
Audit evidence is the documentation collected by an auditor as part of his or her review of the financial accounts, internal controls, and other matters needed to certify a client’s financial statements. The amount and type of audit evidence collected varies by client, depending on the type of industry, the condition of the client’s financial system, and the type of audit. The amount of evidence collected must provide a reasonable basis for the auditor’s opinion. Once collected, the audit evidence is assembled into the auditor’s working papers, where it might be reviewed at a later date, if anyone questions the auditor’s work. The types of audit evidence gathered usually encompasses the items noted below.
Analytical Procedures
Analytical procedures involve comparisons of different sets of financial and operational information, to see if historical relationships are continuing forward into the period under review.
Confirmations
A confirmation is a letter sent by an outside auditor to the suppliers and customers of a client, asking them to verify the payable and receivable balances associated with them in the client’s financial records.
Documentary Evidence
Documentary evidence is any type of client-generated documentation, such as board minutes, emails, and procedure manuals.
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Observation
The audit team can observe how client personnel conduct various processes, to see if controls are being used properly, and whether there are any weaknesses in how the processes function.
Oral Evidence
The audit team can discuss various issues with client management, inquiring about the nature of anomalies found, how processes are intended to function, the reasons for certain transactions, and so forth.
Physical Examination
The audit team can directly examine various issues, such as verifying that fixed assets exist and that they are in working condition. Physical examination is also used for the inventory portion of the audit program.
Reperformance
The audit team may reperform certain processes to verify whether the controls associated with them are operating properly.
Characteristics of Audit Evidence
High-quality audit evidence has a number of characteristics, which are as follows:
Nature of the evidence. The type of evidence received impacts its perceived quality. For example, a physical confirmation of inventory quantities by the auditor is considered to be high-quality evidence.
Pertinence of the evidence. The evidence used should be pertinent to the objectives of the audit plan.
Reliability of the evidence. The evidence can be trusted in forming an opinion. For example, a receivable confirmation comes from a customer of the client, and as such is considered to be reliable.
Source of the evidence. The evidence should come from an unimpeachable source. For example, a bank statement would come from a client’s bank, which is considered to be a reliable provider of such information.
Sufficiency of the evidence. The evidence has been collected in a sufficient quantity to support the auditor’s judgment regarding the client’s financial statements. For example, a sample size for an examination of supplier invoices must be of a sufficient size to be representative of the entire population of supplier invoices.
Generally, written audit evidence is preferred over oral evidence, while evidence provided by a third party is considered superior to evidence sourced from within the client.