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1. Audit evidence overview
1. Audit evidence overview
Audit evidence is all the information the auditor uses to arrive at the conclusions on which the audit opinion is based. It includes information in written or electronic form as well as observable assets or activities, and it must be obtained to support auditor conclusions.
2. Types of audit evidence
2. Types of audit evidence
Accounting records: Accounting records consist of records of initial entries and any supporting records. For example, accounting records include checks, records of electronic fund transfers, invoices, contracts, ledgers, journal entries, and worksheets.
Corroborating evidence: Corroborating evidence includes minutes of meetings, confirmations, industry analysts' reports, data about competitors, evidence obtained from management specialists, and information obtained through observation, inquiry, and inspection.
Evidence in electronic form: In certain entities, some of the accounting records or corroborating evidence may be available only in electronic form. Source documents may be replaced by electronic messages, or business may be transacted electronically.
3. Obtaining sufficient appropriate audit evidence
3. Obtaining sufficient appropriate audit evidence
Reasonable basis for an opinion: The audit evidence must persuade the auditor that the ending balances in the financial statements are fairly presented. The audit provides reasonable assurance regarding the fairness of the financial statements. The auditor is not a guarantor, and, in most cases, cost-benefit considerations prohibit an examination of 100 percent of the accounting data.
Sufficiency of audit evidence: Sufficiency refers to the quantity of audit evidence. The auditor must use professional judgment in determining the amount and kinds of evidence sufficient to support an opinion. Judgments about materiality and audit risk underlie this determination. The amount of evidence gathered directly affects the level of detection risk, which is the risk that the auditor's evidence-gathering procedures will not be sufficient to support the financial statement assertions.
Appropriateness of audit evidence: Appropriate audit evidence must be reliable and relevant, and the auditor must consider whether the information corroborates or contradicts financial statement assertions. Both contradictory and corroborating information is evidence. The appropriateness of evidence depends on the source of the information and on key attributes such as accuracy, completeness, authenticity, and susceptibility to management bias.
4. Concluding on the sufficiency and appropriateness of audit evidence
4. Concluding on the sufficiency and appropriateness of audit evidence
The results of further audit procedures may lead the auditor to:
Reassess the risks of material misstatement.
Identify control deficiencies as a result of tests of controls or substantive procedures.
Identify misstatements as a result of substantive procedures.
š§® Practice Problem: LO3-01, MCQ-02342
š§® Practice Problem: LO3-01, MCQ-02342
Which of the following types of audit evidence is the most persuasive?
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