Understanding Types of Audit Evidence
As a CPA candidate preparing for the Auditing and Attestation (AUD) section, a deep understanding of audit evidence is crucial. Audit evidence is the information used by the auditor in arriving at an opinion on the financial statements. It encompasses all the data on which the auditor bases their conclusions and recommendations.
The Importance of Sufficient Appropriate Audit Evidence
Auditors must obtain sufficient appropriate audit evidence. Sufficiency relates to the quantity of evidence, while appropriateness relates to the quality of evidence. The auditor must exercise professional judgment to determine what constitutes sufficient appropriate evidence.
Categories of Audit Evidence
Audit evidence can be broadly categorized based on its nature and how it is obtained. Understanding these categories helps in planning and executing audit procedures effectively.
| Type of Evidence | Description | Examples |
|---|---|---|
| Physical Evidence | Tangible evidence that can be seen, touched, or counted. | Inspection of inventory, examination of fixed assets, observation of cash counts. |
| Testimonial Evidence | Information obtained from individuals through inquiries and confirmations. | Client inquiries, confirmations with third parties (e.g., banks, customers, vendors), management representations. |
| Documentary Evidence | Evidence derived from written or electronic records. | Invoices, bank statements, contracts, purchase orders, accounting ledgers, minutes of meetings. |
| Mathematical Evidence | Evidence derived from recalculations and reconciliations. | Recalculation of depreciation, reconciliation of bank statements, verification of mathematical accuracy of ledgers. |
| Analytical Evidence | Evidence obtained through the analysis of plausible relationships among both financial and nonfinancial data. | Ratio analysis, trend analysis, comparison of current year data with prior year or budget. |
| Electronic Evidence | Evidence derived from digital records and systems. | Data from accounting software, electronic mail, system logs, databases. |
Reliability of Audit Evidence
The reliability of audit evidence is a critical factor in its appropriateness. Generally, evidence is more reliable when it is:
Think of evidence reliability like a witness in court: a witness who saw the event directly and has no personal stake is generally more credible than someone who heard about it from a friend.
Audit Procedures to Obtain Evidence
Auditors employ various procedures to gather evidence. These include:
Loading diagram...
Key Concepts for CPA Exam Success
For the CPA exam, focus on understanding how different types of evidence are obtained and their relative reliability. Be prepared to identify the most appropriate type of evidence for a given assertion or scenario. Also, understand the relationship between audit procedures and the evidence they generate.
Sufficient (quantity) and appropriate (quality).
Documentary evidence.
Inspection of inventory or examination of fixed assets.
Learning Resources
Access the official auditing standards set by the AICPA, which detail requirements for audit evidence.
Explore the auditing standards issued by the Public Company Accounting Oversight Board, relevant for public company audits.
A clear and concise explanation of audit evidence, its types, and importance in financial audits.
Provides a detailed breakdown of various types of audit evidence with practical examples.
A video tutorial explaining the fundamental concepts of audit evidence for CPA exam candidates.
A blog post from a reputable CPA review course provider focusing on key aspects of audit evidence.
An example lecture from a university course on financial statement auditing, covering procedures and evidence.
An article discussing the critical role and challenges associated with obtaining sufficient appropriate audit evidence.
A general overview of audit evidence, its definition, and its significance in the auditing process.
Explores the relationship between internal controls and the type and sufficiency of audit evidence required.