CHAPTER 6:

AUDIT EVIDENCE

AUDIT EVIDENCE
Supports the auditor opinions and
conclusion
auditor should identify sufficient, reliable
,relevant and useful information to provide
FACTUAL BASIS for audit opinions
Evidence is necessary to exercise

JUDGEMENT

NATURE of evidence
Cost-effective Basis within time and cost limits is
sufficient to justify the opinion
Evidence + information
Persuasive rather than Conclusive - not possible to
eliminate risk that FS contain misstatements
Auditor often uses evidence from different sources
to support same assertion

1.Sufficient - theOF
measure
of the quantity of evidence
ATTRIBUTES
EVIDENCE
- Enough evidence should be collected and evaluated so that a
reasonably informed unbiased person would agree with the
auditors findings and conclusions
- Rufficiency

+ Reliability + Relevance

Consider:
*risk involved
evidence

*quality of available

*seeking reasonable,but not absolute,conclusion *incomplete

data
*Ineffective examination of extensive eviden

*evidence

2. Reliability- measure of the quality

(appropriateness and trustworthiness) of sources
and techniques.
- Credible independent source is more reliable than
source from an auditee ( documents, physical
examination etc.)

Factors whether or not seek additional evidence:

High degree of consistency among evidence
already collected
High degree of risk , significance, or sensitivity
matter to be reported

Generalizations on the Reliability of Audit

evidence:
Reliability of audit evidence is influenced by its
nature and source
Generalizations:
Outside independent source is more reliable
Evidence that is generated internally is more reliable
Audit evidence obtained directly by the auditor
Documentary evidence is more reliable than oral
representation
Original document is more reliable than photocopies

3. Relevance - measure of the pertinence of

the evidence
Factors:
- materiality
- inherent and control risk
- experience from prior evidence
- persuasiveness
-error or fraud found during audit

Types of audit
evidences

What is an audit evidence?

Audit evidenceisevidenceobtainedduringa
financialauditandrecordedinthe
auditworkingpapers.Intheauditengagement
acceptanceorreappointmentstage,audit
evidenceistheinformationthat
theauditoristoconsiderforthe
appointment.

a. Physical audit evidence

Inspection or count by the auditor of a
tangible asset.
Different from examining documentation is
that the asset has inherent value.

b. Testimonial audit evidence

Client or third party representations
The receipt of a written or oral response from an
independent third party
To obtain third party representations, confirmation
letters should be used.
Responses to surveys/questionnaires, inquiries,
interviews
May be written or oral

 1.
2.

Customers Confirm A/R balances

Vendors Confirm A/P balances

3. Banks Confirm checking account and

loan balances
4. Attorneys Confirm contingent
liabilities

C. Documentary audit evidence

Should be supported by other documentation
Can be an important lead
May provide information not obtainable by
independent audit testing
Most common type of evidence
May be external
May be internal (originates with auditee)
Source affects reliability

D. Analytical

procedures

Most common type of evidence

May be external
May be internal (originates with
auditee)
Source affects reliability

e. COMPUTATIONS
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.

AUDIT TESTS

Purpose of audit tests

is to allow the auditor to collect sufficient
appropriate audit evidence to be able to
conclude with reasonable assurance that the
financial statements are free of material
misstatement.

Types of audit tests

Substantive Test
- Analytical Procedure
- Tests of Detail
Compliance Oriented Tests
Dual Purpose Test

SUBSTANTIVE TEST
include the detailed examination of selected transactions.
are those activities performed by the auditor to detect
material misstatement or fraud related to transactions or
account balances.

TWO CATEGORIES:
ANALYTICAL PROCEDURES - consist of the comparison of
data from different sources to determine if reported
information looks odd or wrong.
TESTS OF DETAIL - include tracing figures to supporting
documentation to determine if transactions are valid, properly

Compliance oriented tests are designed to assess the

adequacy and effectiveness of controls
also known as Test of Controls
TEST OF CONTROLS - are designed to provide reasonable
assurance that control procedures are being applied as
prescribed.
Examples of tests of controls:
Inquiries of appropriate management, supervisor, and staff
personnel.
Inspection of documents, reports, and electronic files.
Observation of the application of specific controls.
Re-performance of the application of the control by the

Dual-Purpose Tests
In practice, many tests fall into the category of dual
purpose tests. The checking of calculations may show
that an internal control checking function is being
properly executed (compliance and test od control) and
may provide assurance as to the accuracy of the
amount recorder in the system (substantive).

SPECIFIC ITEM TEST (JUDGMENTAL)

where individual items are selected for examination
because of their size or other characteristic and reliable
conclusions can only be drawn relative to the items
tested.

REPRESENTATIVE ITEM TEST

where the objective is to examine a random selection of items,
usually accomplished through statistical sampling techniques, to
support the formulation of conclusions with respect to the entire
population based on the sample examined.