Nature and Type of

Audit Evidence
Chapter 7

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Learning Objective 1
Contrast audit evidence with evidence used
by other professions.

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Nature of Evidence
Any information used by the auditor to
determine whether the information being
audited is stated in accordance with
established criteria
The use of evidence is not unique to auditors
Evidence is also used by scientists, lawyers,
and historians
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Nature of Evidence

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Learning Objective 2
Identify the four audit evidence decisions
that are needed to create an audit
program.

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Audit Evidence Decisions

1. Which audit procedures to use
2. What sample size to select
for a given procedure
3. Which items to select from
the population
4. When to perform the
procedures (timing)

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Audit Program
It includes a list of the audit procedures
the auditor considers necessary.

Sample sizes

Items to select

Timing of the tests

Most auditors use audit software

packages to generate audit programs.
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Learning Objective 3
Specify the characteristics that determine
the persuasiveness of evidence.

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Persuasiveness of Evidence
Two determinants:

Appropriateness

Sufficiency

The persuasiveness of evidence can be evaluated only after

considering the combination of appropriateness and sufficiency
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Six Characteristics of Reliable

Evidence
1. Independence of provider
2. Effectiveness of clients
internal controls
3. Auditors direct knowledge
4. Qualification of individuals
providing the information
5. Degree of objectivity
6. Timeliness

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Relationships Among Audit

Evidence and Persuasiveness
Audit Evidence Decisions
Audit procedures and timing

Sample size and items to select

Qualities Affecting Persuasiveness

of Evidence

Appropriateness
Relevance
Reliability
Independence of provider
Effectiveness of internal controls
Auditor's direct knowledge
Qualifications of provider
Objectivity of evidence
Timeliness
When procedures are performed
Portion of period being audited
Sufficiency
Adequate sample size
Selection of proper population items

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Persuasiveness and Cost

In making decisions about evidence
for a given audit, both persuasiveness
and cost must be considered.
The auditors goal is to obtain a
sufficient amount of appropriate
evidence at the lowest total cost.

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Learning Objective 4
Identify and apply the eight types of
evidence used in auditing.

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Types of Audit Evidence

Observation

Reperformance

Physical
Examination

Audit
Evidence

Confirmation

Documentation

Analytical
procedures
Recalculation

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Relationships

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Physical Examination
It is the inspection or count by the
auditor of a tangible asset .
This type of evidence is most often
associated with inventory and cash.

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Confirmations
Auditing Standards
United States

International

Requirements

Auditor must confirm

accounts receivable
Auditors control the mailing
and receipt of replies
Electronic confirmations
are permitted
Confirmations are not required

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Information often Confirmed

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Documentation
It is the auditors inspection of the

clients docum ents and records.

Internal
documents

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External
documents

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Analytical Procedures
Understand the clients industry and business
Assess the entitys ability to continue as a
going concern
Indicate the presence of possible misstatements
in the financial statements
Reduce detailed audit tests

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Inquiries of the Client

It is the obtaining of w ritten or oral
information from the client in response to
questions from the auditor.

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Recalculation
It involves rechecking a sample of calculations
made by the client.

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Reperformance
It is the auditors independent tests of client
accounting procedures or controls that
were originally done.

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Observation
Use ones senses to assess
client activities.
Tour plant to obtain a general
impression of clients facilities.
Observation is rarely sufficient
by itself.
Often need to corroborate
with another kind of evidence.
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Appropriateness of Types of
Evidence

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Application of Types of evidence

to the four Evidence Decisions

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Terms and Types of Evidence

Terms

Type of Evidence

Examine
Scan
Read
Compute
Recompute
Foot
Trace
Compare
Count
Observe
Inquire
Vouch

Documentation
Analytical procedures
Documentation
Analytical procedures
Recalculation
Recalculation
Documentation/Reperformance
Documentation
Physical examination
Observation
Inquiries of client
Documentation

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Learning Objective 5
Understand the purposes of audit
documentation.

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Audit Documentation
Audit documentation is the principal record

of auditing procedures applied, evidence

obtained, and conclusions reached by
the auditor in the engagem ent .

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Audit Documentation
Purposes of audit documentation
Ownership of audit files
Confidentiality of audit files

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Sarbanes-Oxley Act
The Sarbanes-Oxley Act requires auditors of
public companies to prepare and maintain
audit working papers for a period of no
less than seven years.

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Learning Objective 6
Prepare organized audit documentation.

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Audit File Contents and Organization

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Permanent Files
These files are intended to contain
data of a historical or continuing
nature pertinent to the current audit.

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Current Files
Audit program
General information
Working trial balance
Adjusting and reclassification entries
Supporting schedules
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Relationship of Audit Documentation

to Financial Statements

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Types of Supporting Schedules

Analysis
Trial balance or list
Reconciliation of amounts
Tests of reasonableness

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Types of Supporting Schedules

Summary of procedures
Examination of supporting documents
Informational
Outside documentation

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Preparation of Audit
Documentation
Proper identification of each file
Files indexed and cross-referenced
Clear indication of work performed
Include sufficient information
State conclusions reached
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Preparation of Audit
Documentation

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Learning Objective 7
Describe how technology affects audit
evidence and audit documentation.

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Effect of Technology
Audit evidence is increasingly in electronic form
Auditors must evaluate how electronic information
affects their ability to gather evidence
Auditors use computers to read and examine
evidence
Software programs are typically Windows-based
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