Back to: Auditing
Welcome, dear student.
As you have now learnt, Auditing is no guesswork – auditors must base their opinion on facts, and those facts come from evidence.
Let’s get into it.
Lesson Objectives:
By the end of this lesson, students should be able to:
Define audit evidence.
Mention different types of audit evidence.
Explain the characteristics of good audit evidence.
Understand how evidence affects the audit report.
Audit Evidence
What is Audit Evidence?
Audit evidence is the information that the auditor collects to support their findings and opinion. It helps the auditor decide whether the financial statements are correct or not.
No evidence = no valid audit opinion.
Types of Audit Evidence:
Auditors can gather evidence in many ways. Some common types include:
1. Physical Evidence:
This comes from physically checking items like inventory, machines, or buildings.
Example: Counting goods in a warehouse to confirm stock records.
2. Documentary Evidence:
This is written or printed information such as receipts, invoices, bank statements, or contracts.
Example: Checking salary payment slips to confirm staff salaries.
3. Oral Evidence:
This comes from discussions or interviews with staff and management. Though useful, it is weaker than written documents.
4. Analytical Evidence:
Here, the auditor compares financial figures, ratios, and trends to see if things look reasonable.
Example: Comparing this year’s sales with last year’s to see if there’s a big, unexplained change.
5. Confirmation from Third Parties:
Sometimes, the auditor writes to people outside the company to confirm a transaction. This could include banks, suppliers, or debtors.
Example: Asking the company’s bank to confirm the closing account balance.
Qualities of Good Audit Evidence:
For audit evidence to be useful, it must be:
1. Reliable: The source must be trustworthy. For example, a signed contract is more reliable than someone’s word.
2. Relevant: It must relate to what the auditor is checking.
3. Sufficient: There must be enough evidence to support the auditor’s opinion.
4. Objective: It should not be based on feelings or bias.
How Auditors Get Evidence:
Auditors can use methods like:
Inspection of documents
Observation (watching staff do their job)
Inquiries (asking questions)
Recalculation
Confirmation letters
Why Evidence Is Important:
Without evidence, an auditor’s report is just an opinion without backing. Evidence makes the report strong and believable.
Imagine: If a student claims they scored 90 in a test but cannot show the script or result slip – nobody will believe it. Same thing in auditing.
Summary of Lesson:
Audit evidence is the information the auditor gathers to support their work. It can be physical, written, oral, or analytical. Good evidence must be reliable, relevant, sufficient, and objective. The audit report depends heavily on the quality of the evidence.
Evaluation:
What is audit evidence?
Mention any four types of audit evidence.
What are two characteristics of good audit evidence?
Give an example of documentary evidence.
Why is audit evidence important in auditing?
School Owner? Automate operations, improve learning outcomes and increase your income with Afrilearn SMS
Get more class notes, videos, homework help, exam practice on Android [DOWNLOAD]
Get more class notes, videos, homework help, exam practice on iPhone [DOWNLOAD]