Types of Audit Evidence

Audit evidence is crucial for verifying the accuracy of financial statements. Different types of evidence, like physical examination and documentation, help auditors assess the reliability of reported values and ensure compliance with regulations. Understanding these types strengthens the auditing process.

1. Physical examination

   • Involves the direct inspection of tangible assets, such as inventory or fixed assets.
   • Provides evidence of existence and condition, helping to verify reported values.
   • Useful for assessing the quality and usability of assets.

2. Confirmation

   • Involves obtaining a direct response from a third party to verify account balances or transactions.
   • Enhances the reliability of evidence by involving independent sources.
   • Commonly used for cash balances, receivables, and payables.

3. Documentation

   • Refers to the examination of records and documents to support financial statement assertions.
   • Includes invoices, contracts, and bank statements as forms of evidence.
   • Helps establish the validity and accuracy of transactions.

4. Observation

   • Involves watching processes or procedures being performed by the client.
   • Useful for assessing the effectiveness of internal controls and compliance with policies.
   • Provides real-time evidence of operations and practices.

5. Inquiries of the client

   • Involves asking questions of management and staff to gather information.
   • Helps auditors understand the client's operations, risks, and internal controls.
   • Should be supplemented with other evidence for reliability.

6. Recalculation

   • Involves checking the mathematical accuracy of documents or records.
   • Can include verifying calculations in financial statements or supporting schedules.
   • Provides assurance that figures are correct and reliable.

7. Reperformance

   • Involves the auditor independently executing procedures or controls to verify their effectiveness.
   • Helps confirm the accuracy of the client's processes and results.
   • Useful for testing internal controls and substantive procedures.

8. Analytical procedures

   • Involves evaluating financial information by studying relationships and trends.
   • Can identify unusual fluctuations or inconsistencies that may require further investigation.
   • Useful in both planning and substantive testing phases of the audit.

9. Computer-assisted audit techniques (CAATs)

   • Involves using software tools to analyze data and perform audit tests.
   • Enhances efficiency and effectiveness in data analysis and sampling.
   • Useful for large datasets and complex transactions.

10. External sources of information

    • Involves obtaining evidence from independent third parties, such as banks or suppliers.
    • Provides additional verification of account balances and transactions.
    • Enhances the credibility of the audit findings by corroborating client information.