Audit evidence

 

Auditors need appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion about financial statements.

Audit evidence  is information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based. Audit evidence includes both information contained in the accounting records underlying the financial statements and information obtained from other sources. Other sources of information may include:

(a) previous audits files,

(b) firm’s quality control procedures for client acceptance and continuance,

 (c) the work of a management’s expert and an external information source.

Examples of information that may be obtained from external information sources include:

·        Prices and pricing related data.

·        Macro-economic data, such as historical and forecast unemployment rates and

·   Industry specific data, such as an index of reclamation costs for certain extractive industries economic growth rates, or census data.

·        Credit history data.

·        Mortality tables used to determine liabilities in the life insurance and pension sectors.

Audit evidence is obtained from supporting documents, accounting system (records), from the managers (directors), from third parties and the assets existing in the company by applying such procedures as inspection, observation, inquiry, confirmation, recalculation, analytical procedures.

Obtained audit evidence in order to be used to draw reasonable conclusions have to be relevant and reliable.

Relevance deals with the logical connection with the purpose of the audit procedure and the assertion under consideration.

The reliability of information to be used as audit evidence is influenced by its source and its nature, and the circumstances under which it is obtained.

The reliability of audit evidence is increased when it is obtained from independent sources outside the entity.

The following generalizations about the reliability of audit evidence may be useful:

·        The reliability of audit evidence that is generated internally is increased when the related controls are effective.

·     Audit evidence obtained directly by the auditor is more reliable than audit evidence obtained indirectly.

·        Audit evidence in documentary form, whether paper, electronic, or other medium, is more reliable than evidence obtained orally.

·        Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles.

ISA 500