Audit Evidence Meaning Example Top 6 Types Of Audit Evidence

Audit Evidence Meaning

The Audit Evidence is the information that the company’s auditor collects from the company. It is part of auditing work to review and verify the company’s different financial transactions, internal controlInternal ControlInternal control in accounting refers to the process by which a company implements various rules, policies, or procedures to ensure the accuracy of accounting and finance information, safeguard the various assets of the business, promote accountability in the business, and prevent the occurrence of frauds in the company.read more, and other requirements to express his opinion on the objective and unbiased view of the company’s financial statements during the period under consideration.

Types of Audit Evidence

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Audit Evidence (wallstreetmojo.com)

#1 – Physical Examination

Physical examination is where the audit inspects the asset and counts them whenever required. This evidence is collected wherever possible based on the nature of the audit.

#2 – Documentation

Under the documentation, the auditor collects written documents like purchase invoices, sales invoices, policy documents of the company, etc., which can be internal or external. This evidence is more reliable as there is some proof in writing based on which the auditor is forming his opinion.

#3 – Analytical Procedures

Auditor uses the analytical procedure to derive the required data or know the correctness of different information. It includes the usage of the comparisons, calculations, and the relationships between the various data by the auditor.

#4 – Confirmations

The auditorsThe AuditorsAn auditor is a professional appointed by an enterprise for an independent analysis of their accounting records and financial statements. An auditor issues a report about the accuracy and reliability of financial statements based on the country’s local operating laws.read more often require the balance confirmations from the third party to ensure that the clients do not manipulate the balances reflected in the financial statements. This receipt of the written response directly from the third party to verify the accuracy and authenticity of different information required by the auditor.

#5 – Observations

Observation is where the auditor of the company observes the various activities of the clients and their employees before making any conclusion.

#6 – Inquiries

Inquiries are the different questions asked by the company’s auditor to the company’s management or concerned employee in the areas where the auditor has doubts. The auditor obtains the answers to these questions.

If you want to learn more about Auditing, you may also consider taking courses offered by Coursera –

Auditing I: Conceptual Foundations of AuditingAuditing II: The Practice of Auditing

Example of Audit Evidence

The company Y ltd appoints M/s B as the company’s auditor for auditing the company’s financial statements for the fiscal year 2018-19. The auditor asks for the written confirmation of the balances from the customers as selected by them to ensure that the balances reflected in the financial statements are correct.

Receiving the written response directly from the third party is required to verify the accuracy and authenticity of various information needed by the auditor. It forms part of the audit evidence of the auditor’s work. In the above case, the auditor asks for the written confirmation of the balances from the customers as selected by them to ensure that the balances reflected in the financial statements are correct. So, these written confirmations are an example of audit evidence.

Advantages of Audit Evidence

It helps ensure the auditor’s accuracy and authenticity of the information furnished to him by his client.It forms the basis on which the auditor of the company expresses his opinion on the company’s financial statements during the period under consideration, i.e., whether the company’s financial statements present the right and fair picture or not.

Disadvantages of Audit Evidence

Sometimes the information obtained as the audit evidence, mainly derived from the internal sources, is manipulated by the clients. If the auditors rely on that information, it will express the wrong audit opinion on the company’s financial statements.If the data size is enormous, then the auditor generally considers the material things only as his sample for verification of the data and not the whole of the data. If the data having the problem are left out by the auditor in his sample, it will not present the correct picture of the company.

Important Points

The auditor can obtain different types of audit evidence, including physical examination, documentation, analytical procedure, observations, confirmations, inquiries, etc.The type and amount are dependent on the type of organization that is being audited and the required audit scope.It can be obtained from internal as well as external sources. However, the evidence obtained from the external sources is more reliable than the evidence obtained from the company’s internal sources.

Conclusion

Audit Evidence is the vital information that the auditor appointed by the company collects as part of its auditing work to express his opinion on the financial statements of the company during the period under consideration, i.e., whether the financial statements of the company present the right and fair picture or not.