Meaning and definition of Audit Evidence
Audit evidence generally refers to the information collected for reviewing the financial transactions of a company in addition to its internal control practices and other essential factors required for the certification of financial statements. The type and amount of the considered auditing evidence varies significantly on the basis of the type of organization being audited in addition to the required scope of the audit. The audit evidence are important to be collected by an auditor during the process of his auditing work.
The main objective of any audit is to find out the compliance of a company’s financial statements with the GAAP applicable to the jurisdiction of the entity. The publicly traded companies are usually required to present fully audited financial statements to shareholders at regular intervals.
Methods of obtaining Audit Evidence
Audit evidence is one of the basic principles that govern an audit. There are various methods that can be adopted to obtain audit evidence. The most common ones include:
This is the most efficient method of obtaining audit evidence. Inspection refers to checking all the documents, records, and physical assets. The reliability of these documents and records depends upon the nature and effectiveness of internal control.
Another important method of obtaining audit evidence is observation. This method involves the auditor to look at a process of procedure being executed by others. This method can be exemplified by the auditors’ presence at the clients’ physical stock count.
- Inquiry and confirmation
The two aspects of this method include searching about the info from a knowledgeable person inside or outside the company, and responding to any inquiry to substantiate information in the accounting records. These responses might provide the auditor with info which is not previously possessed by him or even with corroborative evidence.
This method of obtaining evidence involves the examination of arithmetical accuracy of source documents and accounting records. The method might also involve performing individual calculations.
- Analytical review
This method involves conducting a study of important ratios and trends and examining unusual fluctuations and items.