21^st October - 6^th November

The inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset. There can be different types of audit evidence like third-party documents, internal company memos, and documents prepared by auditors. Analytical procedures involve studying transaction patterns and cross-checking rationale for the account balances/transactions. For instance, if revenue increases with marketing expenses, it’s in line with the expectations. Recalculation – It’s an important auditing procedure to verify the accuracy of the account balance. It involves going through the whole calculating process step by step and ensuring the final balance is accurately recorded in the financial statement.

Bear in mind that the exact type of audit evidence obtained for a specific financial statement line item depends on the line item itself, the assertion being tested, the business nature of the client, etc. Auditors will often choose to independently execute the procedures or controls that are normally performed as a part of the entity’s internal control. This allows the auditor to identify control risk and potential deficiencies that may arise from performing the control itself. The auditor can obtain different types of audit evidence, including physical examination, documentation, analytical procedure, observations, confirmations, inquiries, etc. The AuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country’s local operating laws.

Audit Procedures to Obtain Audit Evidence

To collect evidence, auditors have several ways and types of evidence they can collect. To ensure a true and fair view of the financial statements, auditors have to be objective and cannot rely solely on management’s representation. Every claim presented by the entity to the auditor has to be cross-checked and verified. The only way to do it would be to check them against audit evidence. When auditors perform an audit for an entity, the most important thing that is needed to support the audit opinion would always be sufficient appropriate evidence.

• Once collected, the audit evidence is assembled into the auditor’s working papers.
• On the one hand, observation seems like it should be very strong evidence.
• Oral evidence is the least weighty type of audit evidence and it usually needs to be corroborated by one or more other forms of evidence.
• The inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or a physical examination of an asset.

Reperformance allows auditors to reperform various internal control procedures of the client to identify any weaknesses. Inspection is an audit procedure in which auditors inspect the records, documents, or physical assets of the client. First of all, types of audit evidence audit evidence is the basis on which auditors base their opinion. In the absence of audit evidence, auditors cannot form an opinion. Similarly, when the audit evidence is not sufficient or appropriate, the quality of the opinion provided also suffers.

Testimonial Evidence

Presentation and disclosure—The components of the financial statements are properly classified, described, and disclosed. Rights and obligations—The company holds or controls rights to the assets, and liabilities are obligations of the company at a given date. Presentation and disclosure – The components of the financial statements are properly classified, described, and disclosed.

• Physical evidence is generally much more reliable than testimonial evidence.
• I am familiar with a situation where an auditor asked the right question to an honest person who unknowingly gave a flawed answer because he lacked knowledge about the matter.
• 4) documents that are produced by other organizations or by the auditor and never enter the entity’s system.
• Simply put, audit evidence is the information that the auditor uses to arrive at conclusion, on the basis of which independent opinion can be expressed.
• Audit evidence consists of various audit procedures and can often have a different role in the different stages of an audit.

Inquiries are the most common because they are the easiest type of evidence to obtain and they can result in direct answers to the questions the audit is attempting to ask. Of course, the primary drawback of inquiries is their reliability.

Which of the following is the most reliable type of audit evidence?

Simply put, audit evidence is the information that the auditor uses to arrive at conclusion, on the basis of which independent opinion can be expressed. It may cover all the information generated by the accounting system, actual physical inspection of assets, documents generated by third parties and within the company, comparison of balances of accounts, etc. Receiving the written response directly from the third party is required https://online-accounting.net/ to verify the accuracy and authenticity of various information needed by the auditor. In the above case, the auditor asks for the written confirmation of the balances from the customers as selected by them to ensure that the balances reflected in the financial statements are correct. During the audit process, auditors may come across various items where they need to understand the process to design audit procedures.

Overall, it helps the auditor prove that they have done quality-oriented work. Audit evidence is important because auditors form their opinion based on the same. If evidence collected is sufficient and appropriate, they form an unqualified audit/clean opinion. Although, there is less credibility of these documents as evidence.

Components of Audit Evidence

This is because the auditor needs to verify physically that the entity actually has the inventories stated on its balance sheet in its storage. This refers to the entity’s own documents and records, which could either be internal or external. Internal documentation is produced by the entity whereas external documentation is produced by a third party not related to the entity. It is basically checking the mathematical accuracy of the documents or records obtained. When we talk about sufficient appropriate audit evidence, it refers to both the measure of the quantity and the quality of the audit evidence.

This article will discuss various topics related to audit evidence, including the types of evidence, the procedures used by auditors to gather the evidence, and its quality. Sufficient and appropriate audit evidence is important for the auditor to form audit opinions. Audit Risks that auditors might face also depend on audit sufficient and appropriate evidence. Interviews, actions, and documents can be recorded electronically. Once accessed, the information can be printed out, listened to, or viewed to produce documentary, oral, or physical evidence.

Selecting Items for Testing to Obtain Audit Evidence

Auditors should prepare audit procedures to confirms and verify the financial statements’ assertion as part of their materiality assessment in the financial statements. Documents may be produced by an external party and flow into the entity’s system where they are retained. Such documents are usually subjected to the entity’s internal controls when they enter its system. This type of document is difficult to manipulate because the entity generally has nothing to do with its production. The evidence produced by examining this type of document is considered to be of a higher quality than that produced by examining either internal or internal/external documents. A good example of this type of document is a purchase order received from a customer (external/internal documents).