Audit Evidence

An audit is a systematic independent examination of financial statements, records, documents with an objective to express an opinion on the financial statements of an entity whether they are giving a true and fair view or not. Auditor expresses his opinion (whether the financial statements of an entity are giving a true and fair view or not) on the basis of audit evidence collected by him.

Suggested Videos

Audit Evidence

An auditor applies various audit procedure to obtain audit evidence which enables him to form an opinion whether the financial statements of an entity are free from material misstatement and state a true and fair view or not.

Audit Evidence is the information that the auditor uses in arriving at a conclusion on the basis of which he forms his opinion.

The auditor should obtain sufficient and appropriate evidence which enables the auditor to arrive at a conclusion and supports his opinion. Audit evidence forms the basis for forming an opinion whether the financial statements of an entity state true and fair view or not.

Evidence collected by the auditor should support the contents of its audit report. Sufficiency of audit evidence is the measure of the quantity of audit evidence. Appropriateness of evidence is the quality of the evidence, i.e., its relevance and reliability to support the auditor’s opinion.

Audit evidence includes information provided in books of accounts as well as information from other sources. For Example – Purchase invoice and material received note prepared by the store’s department are evidence to support the purchase.

Browse more Topics under Tools Of Auditing

• Audit Plan
• Audit Programme
• Working Papers

Essentials of good audit evidence

1. Sufficient: Sufficiency is the measure of quantity. Audit evidence is sufficient when they are available in adequate quantity. An auditor applies different audit procedures to obtain sufficient audit evidence like test checking.
2. Reliable: Evidence obtained by the auditor is persuasive rather than conclusive. We cannot consider such evidence 100% reliable for forming an opinion. Reliability of audit evidence depends on its source and nature of such evidence.
3. Source: Audit evidence obtained within the enterprise is known as the internal source. Evidence obtained from an outside enterprise like confirmation from the third party is known as the external source. We consider the external source to be more reliable.
4. Nature: Can be documentary (like bills, vouchers), visual (like the physical verification of fixed assets), or oral (confirmation from employees)
5. Relevant: Whether the audit evidence obtained by the auditor is relevant or not depends on the purpose of audit procedures.

There are some thumb rules which helps in identifying the appropriateness of evidence

1. Written (documentary) evidence is better than testimonial evidence.
2. Evidence from external sources is more reliable.
3. Original documents are preferable over their photocopies.
4. The auditor should have a good understanding of internal control of the organization as it enables him to obtain relevant evidence.
5. Evidence obtained by auditor through direct observation, inspection, physical verification, and computations are better than the evidence obtained indirectly.

Solved Example For You

Question: State the important factors that the auditor needs to consider while obtaining evidence?

Ans. Some important factors to consider while obtaining evidence are as follows: –

1. Quality of evidence (its relevance, reliability, and appropriateness)
2. The materiality of evidence, their significance
3. Whether there is a requirement of an audit level of assurance (high) or a review level of assurance (moderate).
4. The risk involved in making an incorrect conclusion