Audit evidence is the information used by auditors to form an opinion on the fairness and reliability of financial statements. It includes any information that supports or contradicts the assertions made in the financial statements.
Types of audit evidence:
- Inspection: Examining documents, records, or tangible assets.
- Observation: Observing activities or processes.
- Inquiry: Obtaining information from knowledgeable individuals within the company.
- Confirmation: Obtaining written confirmation from third parties.
- Recalculation: Checking the accuracy of calculations made by the company.
- Reperformance: Performing procedures that were originally performed by the company.
Key considerations for audit evidence:
- Relevance: The evidence must be relevant to the assertion being tested.
- Reliability: The evidence must be reliable and trustworthy.
- Sufficiency: The auditor must obtain sufficient evidence to form an opinion on the fairness and reliability of the financial statements.
Why is audit evidence important?
- Opinion formation: Auditors use audit evidence to form an opinion on the fairness and reliability of financial statements.
- Credibility: Audit evidence provides credibility to financial information.
- Risk assessment: Auditors use audit evidence to assess the risk of material misstatements in the financial statements.
In essence, audit evidence is the foundation of the audit process, providing the information that auditors use to form an opinion on the fairness and reliability of financial statements.
