Chapter 16 – Audit Evidence

by • 27/08/2011 • B.com part 2 AuditingComments (0)63

Meaning of Audit Evidence

Any document, piece of information, voucher written or oral statement of any procedure which assists an auditor in forming his opinion in regard to the accuracy of data under audit.

The role of the auditor is that of an independent professional critic who investigates, analyses and evaluates the information underlying the statement as a means of reaching a conclusion as to their fairness. Before and auditor can express an opinion on financial statements, he must have sufficient evidence that

  • The items in the financial statements are supported by the balances in the ledger accounts.
  • The balances in the ledger account summarize correctly the numerous debit and credit entries.
  • These debit and credit entries in the accounts represent proper accounting interpretation of all the transaction entered into be the business.

Importance of Audit Evidence

While accepting the appointment, an auditor accepts to discharge certain legal obligations and responsibilities. In discharging his responsibility, the auditor should convince himself, in the first instance, that the accounts, he is reporting upon, are correct and the financial transaction recorded are duly supported by the documentary evidence. If he is not satisfied with the accuracy of the accounts or the authenticity of evidence, there is no point in certifying the accounts as correct. The examination of evidence is therefore necessary, so that strength would be based for independent, impartial and expressed opinion of the auditor. On auditor’s opinion, the Directors, Shareholders and other initiative action.

Objectives of Audit Evidence

The objects of verifying evidence are

  • To ensure that the errors, if any, in the data would be discovered by verifying the evidences.
  • To facilitate the completion of audit programme scheduled and undertaken.

Procedure of Audit Evidence

The following procedure is generally followed for the verification of evidences

  • Verification of accounts of account balances shown in the financial statements or the accounting reports
  • To ensure that the procedure installed for control purposes is properly followed

Looking at the evidence for the balance amount shown in the ledger, the auditor has to work backwards in order to ensure that all those transactions responsible to give rise to that balance is also duly supported with evidences.

The auditor should also carefully ensure that procedures being followed by the organization are effective and do not have any room for leakages. In the area where the financial involvement is heavy, the auditor should carefully review internal control procedures and the implementation of procedures designed and installed for an effective control of function.

Key Points for Collecting Evidences

1. Physical existence of the assets

2. Authoritative documents

3. Statement by third parties

4. Calculation by the auditor

5. Satisfactory Internal Control

6. Subsidiary or detailed records

7. Subsequent action of the company

8. Formal statement by company’s officers

9. Interrelationship with in the data examined.

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