Audit Evidence Types PDF

Sheet (10) Audit Evidence (Cont.) Types of audit evidence: 1- Physical Examination: Physical examination is the inspection or count by the auditor of a tangible asset. This type of evidence is most often associated with inventory. 2- Confirmation:...

Sheet (10) Audit Evidence (Cont.) Types of audit evidence: 1- Physical Examination: Physical examination is the inspection or count by the auditor of a tangible asset. This type of evidence is most often associated with inventory. 2- Confirmation: Confirmation describes the receipt of a direct written response from a third party verifying the accuracy of information that was requested by the auditor. The request is made to the client, and the client asks the third party to respond directly to the auditor. Because confirmations come from third-party sources instead of the client, they are a highly regarded and often used type of evidence. However, confirmations are relatively costly to obtain and may cause some inconvenience to those asked to supply them. 3- Inspection: Inspection is the auditor’s examination of the client’s documents and records. For example, the client often retains a customer order, a shipping document, and a duplicate sales invoice for each sales transaction. When auditors use documentation to support recorded transactions or amounts, the process is often called vouching. To vouch recorded acquisition transactions, the auditor might, for example, verify entries in the acquisitions journal by examining supporting vendors’ invoices and receiving reports and thereby satisfy the occurrence objective. If the auditor traces from receiving reports to the acquisitions journal to satisfy the completeness objective, this latter process is called tracing. 4- Analytical Procedures: Analytical procedures are defined as evaluations of financial information through comparisons and analysis of plausible relationships among financial and nonfinancial data. 5- Inquiries of the Client: Inquiry is the obtaining of written or oral information from the client in response to questions from the auditor. Inquiry usually cannot be regarded as conclusive because it is not from an independent source and may be biased in the client’s favour. Therefore, when the auditor obtains evidence through inquiry, it is normally necessary to obtain corroborating evidence through other procedures. (N.B. Corroborating evidence is additional evidence to support the original evidence.) 6- Recalculation: Recalculation involves rechecking a sample of calculations made by the client. Rechecking client calculations consists of testing the client’s arithmetical accuracy. A considerable portion of auditors’ recalculation is done using spreadsheet or audit software. 7- Reperformance: Reperformance is the auditor’s independent tests of client accounting procedures or controls that were originally done as part of the entity’s accounting and internal control system. Whereas recalculation involves rechecking a computation, reperformance involves checking other procedures. For example, the auditor may compare the price on an invoice to an approved price list, or may reperform the aging of accounts receivable. 8- Observation: Observation consists of looking at a process or procedure being performed by others. The auditor may tour the plant to obtain a general impression of the client’s facilities, or watch individuals perform accounting tasks to determine whether the person assigned a responsibility is performing it properly. Observation provides evidence about the performance. However, Observation is rarely sufficient by itself because of the risk of client personnel changing their behaviour because of the auditor’s presence. Cost of Types of Evidence: The two most expensive types of evidence are physical examination and confirmation. Inspection, analytical procedures, and reperformance are moderately costly. The three least-expensive types of evidence are observation, inquiries of the client, and recalculation.