MODULE ONE – AUDIT EVIDENCE

MODULE OVERVIEW

Auditing is a very important function to an organization’s success. Auditors play a critical

role as they provide an opinion on whether the financial statements are fair and free
from material misstatements due to fraud or error. This opinion provides reasonable
assurance that the governance, risk management and control processes are operating
efficiently. To form such an opinion the auditor must gather appropriate and sufficient
evidence to confirm the accuracy of financial and other types of information. This
module is dedicated to introducing the concept of audit evidence as it relates to the
Institute of Internal Auditors Standards for Professional Practice of Internal Auditing.
The module is divided into three sessions namely Audit evidence; Types of audit
evidence; and Procedures for collecting audit evidence.

In session one you will be introduced to the concept of collecting audit evidence and
examine other related topics such as:

 When is evidence sufficient?

 What is meant by reliable evidence?
 When is evidence relevant?
MODULE OBJECTIVES

By the end of this module you will be able to:

 Define audit evidence;

 Determine when audit evidence is sufficient;
 Discuss what is meant by reliable and relevant audit evidence.
 Analyze and explain the relationship between the audit risk model and evidence
collected.
 Design an audit strategy for collecting audit evidence.
 Evaluate the design of the strategy for collecting audit evidence
UNIT 1
SESSION 1: AUDIT EVIDENCE

SESSION 1: OBJECTIVES

By the end of this session you will be able to:

 Define audit evidence;

 Determine when audit evidence is sufficient;
 Discuss what is meant by reliable and relevant audit evidence.

INTRODUCTION

Have you ever conducted an audit and felt unsure of whether you had collected enough
audit evidence? Well you are not alone and that is why this course was created so that
auditors can develop confidence in their evidence gathering skills.

The main outcome of an audit engagement is the production of a report chronicling the
audit findings; the auditor’s opinion and the recommendations. The findings, opinion
and recommendations are all based on the quality of evidence uncovered during the
engagement to support the audit assertions of whether or not the records present a true
and fair statement of the organizations operations.
WHAT IS AUDIT EVIDENCE?

Audit evidence refers to information obtained by the auditor on which conclusions are
based. According to the Institute of Internal Auditors Standards for Professional Practice
of Internal Audit:

2310 - Identifying Information

Internal auditors must identify sufficient, reliable, relevant, and useful information to
achieve the engagement's objectives.

WHEN IS AUDIT EVIDENCE SUFFICIENT?

Professional skepticism requires the auditor to always carry a certain amount of doubt
on whether the financial statements are fairly stated. The auditor must use appropriate
techniques to gather enough relevant information to dispel this doubt. Sufficient
information is factual, adequate, and convincing so that a prudent, informed
person would reach the same conclusions as the auditor. Therefore, the evidence
gathered must support the auditor’s observations.

For instance when verifying the debtors balances the auditor will seek the following
sources of evidence:

a) Review the invoices, and the accounting system

b) Trace the transaction to confirm that the transaction occurred, was authorized and is
accuracy.

The above sources would be said to be sufficient to enable the auditor arrive at a
conclusion whether the debtor balances are accurate or not.

Audit evidence should be persuasive rather than conclusive. The auditor should explore
different sources of evidence to arrive at appropriate conclusion.
WHAT IS MEANT BY RELIABLE EVIDENCE?

Reliability refers to the degree of confidence or trust that the auditor has placed in the
particular source of evidence. The source of evidence relied upon by an auditor should
be one that has integrity and likely to give accurate information. The degree to which the
source is relied upon depends on the nature of the evidence. The nature of evidence
refers to how it was prepared this is whether it was written or oral.

WHEN IS EVIDENCE RELEVANT?

When an auditor with some evidence is capable of achieving his objective in terms of
confirming or dispelling a particular financial statement assertion then, that evidence is
said to be relevant. For instance when verifying the existence of fixed assets the
auditor will perform a physical count of such assets and compare his results with what
has been captured in the fixed assets register.

SUMMARY

In this session you were introduced to the concept of audit evidence and provided with
examples of what audit evidence is, when audit evidence can be considered reliable
and when it relevant. In the next session we will go into more detail about the types of
audit evidence and the techniques and procedures for collecting evidence.
ACTIVITY 1.

After reading the article below you are to:

 Explain the concept of audit evidence;

 Establish what would be considered sufficient audit evidence and
 When would audit evidence be regarded reliable and relevant?

Post your responses in the discussion forum by Wednesday of this week and respond
to at least two of your peers by midnight on Saturday.

Reading:

To complete this week’s activity please read this article about audit evidence.

https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-00326.pdf

REFERENCES

Audit Evidence. Business-competence.com. The Business Resource.

http://www.business-competence.com/audit-evidence.html

Institute of Internal Auditors (IIA).Standards and guidance for professional practice of

Internal Auditing. Theiia.org

http://www.theiia.org/guidance/standards-and-guidance/ippf/standards/full-
standards/?search=risk