Which of the following statements concerning audit evidence is correct? Audit evidence plays a crucial role in the audit process, providing the foundation for auditors to form their opinions on the fairness of financial statements. This article delves into the nature, types, and evaluation of audit evidence, highlighting its significance in ensuring the credibility and reliability of financial reporting.

Audit evidence encompasses various forms, including physical documentation, electronic records, and oral or written statements obtained from knowledgeable individuals. The sufficiency and appropriateness of audit evidence are critical considerations, as they directly impact the auditor’s ability to draw reasonable conclusions about the accuracy and completeness of financial information.

Definition of Audit Evidence

Audit evidence refers to the information gathered by auditors during an audit engagement that supports the auditor’s opinion on the financial statements.

Audit evidence is essential in the audit process as it provides the basis for the auditor’s conclusions and recommendations. Without sufficient and appropriate audit evidence, the auditor cannot express an opinion on the financial statements.

Types of Audit Evidence

• Physical evidence: This includes tangible evidence such as documents, records, and assets.
• Documentary evidence: This includes written or printed documents such as invoices, bank statements, and contracts.
• Testimonial evidence: This includes statements made by management, employees, or third parties.
• Analytical evidence: This includes the analysis of financial and non-financial data to identify trends and relationships.
• Calculated evidence: This includes calculations performed by the auditor to test the accuracy of the financial statements.

Sufficiency and Appropriateness of Audit Evidence: Which Of The Following Statements Concerning Audit Evidence Is Correct

Sufficiency of audit evidencerefers to the quantity of audit evidence gathered. The auditor must gather sufficient evidence to support their conclusions and recommendations.

Appropriateness of audit evidencerefers to the quality of the audit evidence gathered. The auditor must gather appropriate evidence that is relevant, reliable, and sufficient to support their conclusions and recommendations.

Gathering and Evaluating Audit Evidence

The process of gathering audit evidence involves:

• Planning: The auditor plans the audit engagement and identifies the audit procedures that will be performed.
• Execution: The auditor performs the audit procedures and gathers the necessary audit evidence.
• Evaluation: The auditor evaluates the audit evidence to determine its sufficiency and appropriateness.

The techniques used to gather audit evidence include:

• Inspection: The auditor examines documents, records, and assets.
• Observation: The auditor observes processes and activities.
• Inquiry: The auditor interviews management, employees, and third parties.
• Confirmation: The auditor obtains written confirmation from third parties.
• Recalculation: The auditor performs calculations to test the accuracy of the financial statements.

Documentation of Audit Evidence

The auditor must document the audit evidence gathered during the audit engagement. This documentation provides a record of the audit procedures performed and the evidence obtained.

The requirements for documenting audit evidence include:

• Accuracy: The documentation must be accurate and complete.
• Timeliness: The documentation must be prepared promptly after the audit procedures are performed.
• Relevance: The documentation must be relevant to the audit procedures performed.

The methods of documenting audit evidence include:

• Audit working papers: These are the primary means of documenting audit evidence.
• Memoranda: These are used to document specific audit procedures or findings.
• Spreadsheets: These are used to summarize and analyze audit evidence.

Use of Audit Evidence in the Audit Report

The auditor uses the audit evidence gathered during the audit engagement to form an opinion on the financial statements.

The auditor may issue different types of audit reports, including:

• Unqualified opinion: This is the most favorable type of audit report and indicates that the auditor has obtained sufficient and appropriate audit evidence to support their opinion that the financial statements are presented fairly.
• Qualified opinion: This indicates that the auditor has obtained sufficient and appropriate audit evidence to support their opinion that the financial statements are presented fairly, except for a specific matter.
• Adverse opinion: This indicates that the auditor has not obtained sufficient and appropriate audit evidence to support their opinion that the financial statements are presented fairly.
• Disclaimer of opinion: This indicates that the auditor has not obtained sufficient and appropriate audit evidence to form an opinion on the financial statements.

The audit evidence gathered during the audit engagement plays a vital role in supporting the auditor’s opinion on the financial statements.

Quick FAQs

What is the primary purpose of audit evidence?

Audit evidence provides auditors with objective support for their opinions on the fairness of financial statements.

What factors influence the sufficiency of audit evidence?

Factors include the nature of the assertion being tested, the risk of material misstatement, and the reliability of the evidence.

How is audit evidence documented?

Audit evidence can be documented in various forms, such as audit working papers, electronic files, and photographs.