Audit Evidence Notes

AUDIT EVIDENCE

Audit evidence is all the information used by the auditor in arriving at the conclusions on which the audit opinion is based, and includes the information contained in the accounting records underlying the financial statements and other information.

WHAT MAKES THE EVIDENCE PERSUASIVE?

In GAAP, the third standard of field work requires that the auditor to seek competent evidentiary matter. The evidence must be both competent and sufficient. 

Competence means that the evidence must be believable or worthy of trust. The seven characteristics of competent evidence include:

1. Relevance : to the audit objective that the auditor is testing;

2. Independence of the provider : information received from outside the entity is presumed to be more reliable than from inside the entity.

3. Effectiveness of the client's internal controls : evidence from a client whose internal controls are effective is more trustworthy.

4. Auditor's direct knowledge : data or calculations prepared by someone inside the organization will not be as reliable as data computed or discovered by the auditor directly.

5. Qualifications of the individuals providing the information : reliability of the information is enhanced if the person providing it is qualified to do so.

6. Degree of objectivity : objective evidence is more reliable than evidence that is subjective.

7. Timeliness : data that are timely for the purpose intended are considered more reliable.

Sufficiency of evidence refers to the quantity of evidence, In part, sufficiency relates to the sample size that the auditor selects, but the individual items selected for the sample may have a bearing as well. The point is that, in order for the data to be persuasive, the auditor must take into account the combined effect of competence and sufficiency.

TYPES OF AUDIT EVIDENCE

There are 7 types of evidence in deciding which procedure to be used.

1. Physical examination : of a tangible asset such...