The importance of audit evidence

The Latest Rules and Regulations That Impact Your Government Entity

Audit evidence simply put is the documentation support and the information collected that allows your auditor to review your entity’s financial transactions, internal controls, and other items necessary to allow your auditors to certify the financial statements. This support and information requested by your auditor will vary not only by the entity under audit but the scope of the audit being performed.

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Audits are conducted to determine if the entity’s financial statements are in compliance with accounting standards the entity must comply with such as generally accepted accounting principles (GAAP), international financial reporting standards (IFRS) or other applicable accounting standards. The requirement of presenting fully audited financial statements will vary depending on the entity being audited. Auditing evidence provides your auditors with the information that will assist them in their determination of whether the entity’s financial statements are accurate and true. Auditing evidence also corroborates the information provided by management through the financial statements.

The quality of the auditing evidence provided can be measured based on the following characteristics:

Sufficiency considers whether the quantity of the audit evidence provided is adequate for an auditor to accurately make a judgement. For example, if an auditor was only provided a single account reconciliation it would not be enough to make any determinations on the company’s processes and controls.

Reliability considers whether the information and support provided can be trusted enough to form an opinion, which largely factors in the source of the audit evidence which can be internal or external sources.

Nature refers to form in which the information is being received. Audit evidence can be provided through physical documentations, orally from staff members or through confirmations from external sources.

Relevance as a guiding factor of audit evidence is how material the information is to the overall analysis. Which is dependent upon the type of audit being performed by your auditors.

Your auditor will prefer information that is in written form over information that is provided orally; information provided from a third-party source rather than from employees of your organization and original documents over copies. Your auditor will also like to obtain an understanding of your organization in order to request appropriate audit evidence; they will also like to perform observations as opposed to documentation provided through previously discussed sources. So during your next audit recall the importance of audit evidence and try to best provide sufficient, reliable and relevant audit evidence to allow your auditors to effectively conduct your audit.

If you have any questions, please contact your Henry+Horne advisor.

Cheyanne Femiani