Audit Evidence: Its Definition and Its Use
Audit evidence refers to the information, data and documents that are accumulated and analyzed by an auditor during an audit. It is used to determine whether an entity’s financial statements are in accordance with generally accepted accounting principles, or GAAP. The purpose of audit evidence is to provide assurance that the financial reports of a company accurately reflect the true financial position and results of its operations.
When gathering audit evidence, an auditor may use procedures such as inquiry, observation, inspection, analytical procedures, and verification. These procedures provide the auditor with useful information, including the transactions and events that have occurred and the internal control system of the client. During the audit process, the auditor is looking for evidence to support the material accuracy of accounting records or financial statements. Materials that may be sought include written contracts, deposit slips, invoices, bank statements, canceled checks, and payroll records.
The evidence should be thorough and reliable enough to support the auditor’s opinion. The audit team should keep detailed records of all the evidence that is collected during the audit along with a description of the source, such as the person or department that supplied it. The audit team should also be able to demonstrate exactly when the evidence was collected.
In order to ensure the accuracy of the evidence, it is important that audit teams have access to the client’s internal controls. Internal controls refer to the policies, procedures and processes that a business has in place to reduce errors and fraud. These can include controls such as segregation of duties, independent review of financial transactions and internal reviews.
When reviewing information and documents, an auditor should consider their reliability and completeness. Reliability refers to the accuracy of the evidence; the auditor should determine whether the evidence is complete and accurate. Completeness refers to whether the evidence contains all of the pertinent information about the transaction or event being audited.
Before concluding the audit, it is important for the auditor to evaluate all of the evidence obtained so that an opinion can be provided to the client. This is done by comparing the information with the relevant GAAPs and assessing whether the evidence supports the conclusions that were drawn during the review process.
The audit evidence should be sufficient to support the opinion of the auditor. An audit team that can demonstrate that the evidence was obtained in a professional manner and that it is reliable and complete will provide assurance to the client that the audit was conducted properly. The audit results provided should provide the client with a balanced and fair representation of their financial position. Auditors should not rely on only one source of evidence, which could result in a biased opinion.
Audit evidence is a vital tool for auditors who must ascertain an entity’s financial position and the accuracy of its financial statements. Reliance on audit evidence allows auditors to render opinions on a company’s financial statement with utmost confidence and accuracy. This provides both the auditee and third parties who rely on the financial statement with the assurance that the financial statement presented is accurate and reliable.
