Audit evidence

Definition

Audit evidence is the information collected by an auditor to evaluate the fairness and accuracy of financial statements. This evidence forms the basis for the auditor's opinion and helps in determining whether the financial statements are free from material misstatement, whether due to fraud or error. The quality and quantity of audit evidence are critical, as they influence the reliability of the audit conclusion.

5 Must Know Facts For Your Next Test

1. Audit evidence can be obtained from various sources, including documents, observations, confirmations, and inquiries.
2. There are two types of audit evidence: persuasive evidence, which supports the auditor's conclusion, and conclusive evidence, which provides strong support for the opinion on financial statements.
3. The sufficiency of audit evidence refers to the quantity of evidence needed, while the appropriateness relates to its relevance and reliability.
4. International Standards on Auditing (ISAs) outline specific requirements for gathering audit evidence and emphasize the need for sufficient and appropriate evidence.
5. In assurance engagements for sustainability reports, auditors seek audit evidence to assess whether the reported information is complete and fairly presented in accordance with applicable criteria.

Review Questions

• How does audit evidence contribute to the overall reliability of financial statements?
  • Audit evidence is crucial in establishing the reliability of financial statements because it provides the factual basis for the auditor's opinion. The more reliable and relevant the audit evidence collected, the stronger the conclusion an auditor can draw about whether financial statements are free from material misstatement. Additionally, various types of audit evidence can be used together to build a comprehensive understanding of a company's financial position.
• Discuss how International Standards on Auditing (ISAs) influence the gathering of audit evidence.
  • International Standards on Auditing (ISAs) provide a framework that guides auditors in collecting sufficient and appropriate audit evidence. These standards specify methodologies for various auditing procedures and emphasize the importance of using both qualitative and quantitative aspects of evidence. By adhering to ISAs, auditors ensure that their work meets global benchmarks for quality and reliability, ultimately enhancing stakeholder confidence in audited financial statements.
• Evaluate the challenges auditors face in obtaining adequate audit evidence for sustainability reports and their implications.
  • Obtaining adequate audit evidence for sustainability reports presents unique challenges due to factors like varied reporting frameworks, lack of standardization, and differing stakeholder expectations. Auditors must navigate these complexities to ensure that the sustainability information is accurate and reliable. The implications of insufficient audit evidence can lead to misguided decisions by stakeholders who rely on this information for assessing corporate responsibility and sustainability practices.

Related terms

Substantive Procedures: Procedures performed by auditors to detect material misstatements in financial statements, which can include tests of details and analytical procedures.

Internal Controls: Processes and procedures implemented by a company to ensure the integrity of financial and accounting information, aiming to prevent errors or fraud.

Audit Risk: The risk that an auditor may issue an incorrect opinion on financial statements due to material misstatements that are not detected.