Question

What is evidence and types of evidence in is audit?

Answer 1

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Evidence, broadly construed, is anything presented in support of an assertion, because evident things are undoubted. There are two kind of evidence: intellectual evidence (the obvious, the evident) and empirical evidence (proofs). Types of legal evidence include testimony, documentary evidence, and physical evidence.

Audit evidence refers to information or data that use or collect by auditors as part of their audit works so that they could conclude their opinion on whether or not financial statements are prepared in all material respect and in accordance with the applicable financial reporting frameworks.

Answer 2

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$\sf{\underline{\overline{\pink{ Audit \: evidence :}}}}$

• $\bold{Audit \:evidence}$ is evidence obtained by auditors during a financial audit and recorded in the audit working papers.

• Auditors need audit evidence to see if a company has the correct information considering their financial transactions so a C.P.A. can confirm their financial statements.

$\sf{\underline{\overline{\purple{ Examples :}}}}$

• Bank accounts.

• Management accounts.

• Payrolls.

• Bank statements.

• Invoices.

• Receipts.

$\sf{\underline{\overline{\orange{ Types \: of \: audit \: evidence :}}}}$

1. Physical examination :

• $\bold{Physical \:examination}$ is where the audit inspects the asset physically and counts them whenever required. This evidence is collected wherever possible based on the nature of the audit.

2. Documentation :

• Under the $\bold{documentation}$, 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 $\bold{analytical \: procedure}$ to derive the required data or to 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 :

• Many times the auditors require the balances $\bold{confirmations}$ 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 :

• $\bold{Observation}$ is where the auditor of the company observes the various activities of the clients and their employees before making any conclusion.

6. Inquiries :

• $\bold{Inquiries}$ are the different questions asked by the auditor of the company to the management or concerned employee of the company in the areas where the auditor has the doubt. The auditor obtains the answers to these questions.

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⠀⠀⠀⠀⠀⚘ More to know :

$\bf{\underline{\overline{\blue{Important \: Points :}}}}$

• The auditor can obtain different types of audit evidence, and it includes 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 the internal as well as external sources. However, the evidence obtained from the external sources is more reliable than the evidence obtained from the internal sources of the company.