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Audit Evidence and Documentation
What is Audit Evidence?
Audit evidence is all the information used by the auditor to arrive at the conclusions on which the audit opinion is based. It forms the backbone of an audit and helps auditors determine whether the financial statements are reliable.
Evidence can come in many forms:
Invoices
Contracts
Bank statements
Observation of processes
Verbal statements (inquiry)
Characteristics of Good Audit Evidence
Audit evidence should be:
Sufficient: Enough quantity to support the opinion
Appropriate: High in relevance and reliability
For example:
An original signed contract (reliable and relevant)
A verbal assurance from an employee (less reliable)
Types of Audit Evidence
Physical Examination – E.g. inspecting inventory or fixed assets
Documentation/Records – E.g. checking receipts or sales ledgers
Observation – Watching how a process or control is performed
Enquiry – Asking questions to management or staff
Confirmation – Verifying account balances with third parties (like banks)
Recalculation – Checking the mathematical accuracy of records
Analytical Procedures – Comparing current data with prior years or industry benchmarks
Sources of Evidence
Internal: Originates within the client’s organisation (e.g. internal memos)
External: Comes from outside parties (e.g. bank confirmations)
Generally, external evidence is more reliable than internal, and written evidence is more reliable than oral.
Audit Documentation (Working Papers)
Audit documentation refers to the written record of audit procedures, evidence obtained, and conclusions drawn.
Purpose:
Supports the auditor’s report
Serves as a record for future audits
Provides evidence that the audit complied with standards
Aids supervision and review
Contents of Audit Documentation
Audit programmes
Risk assessments
Working papers showing evidence
Notes on audit findings
Communications with management
Under ISA 230, auditors must document:
The nature, timing, and extent of audit procedures
The results and conclusions reached
Who performed the work and when
Evaluation
At the end of this topic, you should be able to:
Define audit evidence and understand its importance
Identify the types and sources of evidence
Recognise the need for sufficient and appropriate evidence
Understand the purpose and structure of audit documentation
Audit evidence is what turns an auditor’s judgement into a defensible conclusion. Without it, an audit opinion is just an opinion.
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