Audit Evidence Notes
Introduction
The main objective of auditing is the verification of accounting data
besides determining the accuracy and reliability of the accounting and
financial statements and reports
of any business enterprise. Verification does not exactly mean that
there is certainty in connection with the data and financial statements
being audited. It means seeking for sufficient evidence to satisfy
oneself as the auditor that the statements and accounts show true and
fair view. Sufficient evidence depends on the experience, knowledge and
expertise of the auditor. The auditor is required to obtain evidential
material to support the accounts and financial statements. The evidence
available to the auditor varies in reliability, and the auditor must
consistently be aware of this fact.
Types of Evidence
Various classifications of evidence are presented in this section
together with relative reliability of each type of evidence and the
factors that affect the reliability. These types are discussed here below
Primary Evidence
The source of the figures in the financial statements of any business
enterprise is the general ledger. The general ledger receives its
figures from the various types of journals and it is these books of
account that form the primary source of
evidence. The auditor has a primary role of ascertaining whether the
financial statements and records agree with the primary source of data.
The auditor must ascertain that the figures in the journals originate
from the source documents and they tally with the figures in the
financial statements and accounts. He must ascertain the double entry
rules have been followed to the letter. Once the auditor is satisfied
that the figures are in an agreement, then the next step is to look to
the propriety, validity and accuracy of the ledger balances and the
entries in the journals
Supporting Evidence
The amount of supporting evidence to be consulted by the auditor in
corroboration with the books of accounts will be the inverse relation to
internal control that entered into the preparation of these records. The
strong the internal control the more reliable the supporting evidence
and vice versa. There are two types of supporting evidence. These are:
- Physical evidence
The physical evidence is somewhat limiting in that it can only be
used in tangible assets. The examination of the asset is clear
indication that the asset really exists. - Documentary Evidence
The type of evidence most commonly consulted by the auditor is
documentary evidence. This is evidence that is found in documents
and such sources. Documents vary widely in terms of their
reliability as evidence. Documentary evidence can further be
classified as follows: - Externally created documents sent directly to the auditor – these
documents prepared by third parties but sent directly to the
auditors such bank statements. - Externally created documents in the clients possession – these
documents prepared by the third parties but the client has the
possession of these documents such as sales orders - Evidence originating from within the client’s organisation – the
auditor is likely to gather evidence from within the client’s
organisation. This evidence may be verbal or written, formal or
informal. - Internal evidence circulating outside business – information from
the client but is the hands of external parties. - Internal evidence circulating within the organisation – this is
information circulating within the business only. - Circumstantial Evidence
This is that form of evidence is indirect evidence either presented
knowingly and unknowingly. This form of evidence involves
circumstances from which a reasonable inference can be drawn of the
existence of a given fact or occurrence of a given event.
*Techniques of Collecting Evidence
There are several methods of collect audit evidence. These methods are:
- Physical Examination and counting
- Confirmation from third parties either verbally or formally
- Examination of original documents
- Re – computation of figures
- Retracing book – keeping records
- Scanning
- Enquiry
- Correction
- Correlation
- Observation
