Auditing - Audit Evidence

Being a professional person, Auditor is expert in examining the books of accounts and financial statements of a concern. Auditor gives independent opinion about the books of accounts and the financial statements audited by him. In the eyes of law, he is responsible for the opinions expressed by him. Therefore, each and every assertion should be carefully examined by the Auditor before giving expert advice.

During his audit he should try to collect as much audit evidence as possible and also evaluate the gathered evidence.

Procedures To Collect Audit Evidences

The Auditor might be able to collect sufficient and appropriate evidences through the following procedures −

Compliance Procedure

Assertions made in the financial statements can be examined on the basis of audit evidence obtained from compliance procedures. These assertions relate to existence, effectiveness and continuity of the control system of an organization.

Substantive Procedure

Assertions are examined on the basis of audit evidences obtained from substantive procedures; the assertions are as follows −

  • Completeness of records relating to transactions, assets and liabilities

  • Existence of Assets and Liabilities on a given date and their proper valuation.

  • Occurrence of an event during relevant period.

  • Rights and obligations relating to assets.

  • Disclosure and classification of an item according to recognized accounting policies, practices and legal requirements.

Formation of an Opinion

Following steps are involved in the process of opinion formation −

  • Identification of the assertions
  • Evaluation of the assertions
  • Collection of evidences
  • Evaluation of evidences
  • Formation of opinion

Identification of Assertion

The Auditor has to report whether or not −

  • Profit and Loss account reveals the true and fair profit or loss for the period.

  • Balance sheet represents true and fair view of the financial statements.

  • Books of accounts are maintained according to the generally accepted accounting customs and principles.

Evaluation of the Assertions

The identification of assertions is followed by evaluation. Assertion can be material or immaterial, materiality of assertion depends on the amount, nature, size and overall impact on financial statements.

Collection of Evidence

After identification and evaluation of the assertion, Auditor should collect all necessary evidences in support of assertions.

Auditor should assure himself that the collected evidence is reliable. The following factors decide the reliability of evidences −

  • Whether sources are internal or external
  • Documentary or visual and are evidences from different sources

Evaluation of Evidence

Following steps are involved in the process of opinion formation −

  • Whether evidence is sufficient and appropriate or not.
  • Examination of its quantity, reliability, validity and relevance.

Formation of Opinion

On the basis of the above assertions and evidences, the Auditor forms his opinions and this opinion is called the expert opinion worthy of being relied upon.