Audit Evidence: Types, Procedures, and Substantive Testing

Posted on Jan 1, 2025 in Law & Jurisprudence

Audit Evidence

The Evidence

Evidence:

  • Demonstration: Contrast is a certain amount or general information with people outside the company, and is used to verify your account to profit or benefit assets held. With regard to compliance, it is to respond for leaving firms.
  • Calculation: The auditor selectively repeating a series of mathematical calculations performed by the company to decide on the appropriateness of a certain amount in a report or financial statement.
  • Estimate: Attempts to verify the rationality of a figure, putting it in relation to others.
  • Certification: Consists in obtaining documents that ensure the truth of some fact or information and that, in general, these documents are combined by an authority.
  • Statement: Inquiry information obtained from company employees.
  • Reasons or nature of evidence: Try to get data through examination. Techniques are shown and explored.

General Information

The evidence is a cornerstone of the audit, constituted by all those acts that might be probed by the auditor in relation to examining the annual accounts, which manifests itself through auditing techniques applied in accordance with the professional trial.

Other items of evidence are:

  • Evidence from outside the company provides more reliability than that obtained internally.
  • The evidence from reliable internal control is greater than that resulting from a poor control system.
  • The knowledge gained directly by the auditor through examinations, inspections, calculations, etc. is more persuasive than if the information is now obtained indirectly.

The evidence is determined by three aspects:

  • The proximity between evidence and what is being shown.
  • The address between evidence and what we are showing.
  • The source of the audit review.

Through evidence, the auditor obtains the evidence needed to enable it to ensure that the accounting records, transactions, and balances on the accounts are true and exact. The auditor does not seek to obtain all evidence, but sufficient and appropriate evidence. But always have to obtain evidence, because the lack of it requires the auditor to refrain from expressing an opinion or to express it with reservations.

To decide on the amount of evidence, the auditor has to consider certain specific circumstances:

  • Cost: Must be assessed, which is to obtain as much evidence and the utility that would result.
  • Relative importance: Is determined by the degree of influence of an item within a group, which is classified with respect to all financial information.
  • Likely risk: The assessment of error is incurred in deciding not to revise an item may obtain poor or incomplete evidence.

Types of Evidence

  • Natural evidence: It is the thing-event in itself.
  • Closed evidence: Does not exist in the world around us. They are those who discover things but not if things are.
  • Evidence from a rational argument: Achieved by the reasoning applied to natural or created evidence to reach a conclusion.

The evidence should meet some basic requirements: relevance, adequacy, conformity with accounting principles, consistency, and representativeness. The absence of some of these requirements in the information obtained adversely affects the auditor’s opinion on the reasonableness of the assertions made in the annual accounts. The evidence to indicate a series of tests is known as substantive evidence.

Substantive and Compliance Tests

The audit evidence is obtained through substantive testing and compliance testing.

Substantive Tests

Substantive tests seek audit evidence relating to the integrity, accuracy, and validity of financial information audited. These tests are of two types:

  • Evidence of transactions and balances.
  • Screening, as the study of indexes and significant trends, including investigation of items and transactions considered atypical.

The auditor must obtain evidence through substantive evidence regarding the following:

  • Existence: Assets and liabilities exist at a specified date.
  • Assets, rights, and obligations: Assets are the assets and rights of the company; liabilities are obligations.
  • Occurrences: The transactions or events recorded took place.
  • Integrity: All done accounting must be registered with date and time.
  • Rating: Transactions are recorded at fair value; revenue and expenses have been charged correctly in their period.
  • Presentation and display: All transactions are classified, displayed, and described according to proper accounting principles and criteria.

The Evidence of Compliance

Seeking evidence that internal control procedures are being applied in the form established. The audit evidence is obtained through compliance testing that:

  • Control exists (existence).
  • The control is operating in efficacy (effectiveness).
  • Control worked throughout the period (continued).

Groups of Evidence

The evidence is summarized in five groups:

  • Physical evidence: To identify the physical existence of assets, quantify and specify its attributes.
  • Documentary evidence: The review of documents is the most important evidence.
  • Accounting evidence: The notes are valid evidence of the daily accounting major and essential summaries to prepare annual accounts.
  • Evidence of comparisons and ratios: Comparisons and calculation of ratios between periods of asset and liability accounts, expenses, and income are used to locate significant variations.
  • Standard calculations and tests: To verify the accuracy of balances, records, and documents.

The evidence gives the auditor the reliability of the data given in the annual accounts. It is based on the information reflected in media accounts, and records, documents, contracts, etc., and its validity is due to:

  • Documentation that is supported.
  • Foreign origin.
  • That satisfies the internal control procedures.
  • Which has been obtained directly by the auditor.