Audit evidence for an audit report must be both sufficient (quantity) and appropriate (quality—relevant and reliable) to support the auditor's findings and conclusions. It includes documentation like financial records, invoices, contracts, bank statements, and physical observations. This evidence must demonstrate that the work was performed, reviewed, and supports the final audit opinion.
Audit evidence is critical for verifying the accuracy of financial statements and supporting auditors' opinions. Different types of audit evidence include physical examination, documentation, observations, inquiries, confirmations, analytical procedures, and reperformance.
5 Common Sources Of Substantive Audit Evidence
There are eight different types of audit evidence. They are physical examinations, confirmations, documentation, analytical procedures, observations, inquiries, reperformance, and recalculation.
The specific documents required for an audit depends on the type of audit being conducted and the industry, but some standard documents include:
Not reporting all of your income is an easy-to-avoid red flag that can lead to an audit. Taking excessive business tax deductions and mixing business and personal expenses can lead to an audit. The IRS mostly audits tax returns of those earning more than $200,000 and corporations with more than $10 million in assets.
Audit evidence is generally considered to be more reliable when it is:
Balancing the 3 C's in Auditing Practice
Balancing competence, confidentiality, and communication is essential for the effectiveness of the auditing process.
Sufficient appropriate audit evidence must be obtained to provide a reasonable basis to support the conclusion(s) expressed in an assurance engagement report.
Four Audit evidence that is needed to create an audit program are:
External confirmation is one of the most reliable forms of audit evidence because it comes from independent sources. Common examples include: Bank confirmations.
To enhance the degree of confidence in the financial statements, a qualified external party (an auditor) is engaged to examine the financial statements, including related disclosures produced by management, to give their professional opinion on whether they fairly reflect, in all material respects, the company's ...
Inspection Studying and physically examining documents and records. Provides direct evidence of contents. Exam provides auditor with direct personal knowledge of the existence and physical condition. Review commissioners court meeting minutes looking for authorization of significant events.
Internal Audit Reports: The 5 Cs
Criteria: What needs to be audited and why? Condition: What are the observed circumstances surrounding any issues? Consequence: How do the issues found affect the company? This might include financial, regulatory, security, publicity, or other effects.
Sorts of Audit Evidence:
Budget reports. Bookkeeping data. Financial balances. The board Accounts.
– External evidence: Information from external sources, such as bank statements, confirmations from third parties, or legal opinions. Auditors gather evidence through procedures like inspection, observation, inquiry, and confirmation, depending on the type of evidence and audit objectives.
Audit procedures to obtain audit evidence can include inspection, observation, confirmation, recalculation, reperformance and analytical procedures, often in some combination, in addition to inquiry.
No doubt, verbal evidence is the least reliable. It is the starting point for all other types of audit evidence.
Contradictory evidence: Indicates that a financial statement amount or disclosure is incorrect. Or, is inconsistent with other audit evidence obtained.
Objectivity is the cornerstone of the internal audit golden rule. Auditors must approach their work without bias, ensuring their evaluations are fair, impartial, and based solely on evidence.
These could be both internal as well as external. Some examples of internal documentary evidence are accounting and information records, copies of outgoing correspondence, plans, budgets, annual reports and internal audit reports, etc.
The Big 4 are the largest accounting and auditing firms in the world: Deloitte LLP (Deloitte), PricewaterhouseCoopers (PwC), Ernst & Young (EY) and Klynveld Peat Marwick Goerdeler (KPMG). They're so big that their joint revenue in 2024 was—you guessed it—$212 billion.
Direct evidence — directly proves a fact. This type of evidence can include eyewitness testimony, video recordings, or confessions. It is considered the most reliable form of evidence and can be used to prove a defendant's guilt or innocence. Circumstantial evidence — suggests a fact but does not directly prove it.
Determining Sufficiency Through Risk and Materiality. Risk assessment directly affects how much audit evidence auditors need. Higher risks mean auditors should collect more evidence. The risk-materiality relationship creates the foundation for determining sufficient evidence.
Let's have a look at the documents required during an audit: