Why is it important for an auditor to collect evidence? Explain some of the different methods to collect evidence including an example of a computer audit software program. Comment on the advantages and disadvantages of each method. What is the best approach to gathering evidence?
Audit evidence are the documents and information collated by the Auditor as part of his or her review of financial statements, internal controls or other related matter to the client’s Financial management system.
It is the duty of the Auditor to examine and form an opinion whether, the financial statements gives true and fair view of the financial position of the company at of the financial year-end and financial performance and cash flows of the year end. The auditor gives his opinion based on the conclusion he arrives by using the information and documentations he collected during the audit and , collation of audit evidence is important for the Auditor.
Different methods of collection of Audit Evidence
S No. |
Method |
Advantage |
Disadvantage |
1 |
Inspection - Inspection involves examining records or documents, whether internal or external, in paper form, electronic form, or other media, or physically examining an asset. |
Inspections may provide reliable audit evidence with respect to existence of a fact. |
Inspection not necessarily establishes ownership of the entity with respect to the evidence. |
2 |
Inquiry - Inquiry consists of seeking information from knowledgeable persons in financial or nonfinancial roles within the company or outside the company. |
Inquiry may be performed throughout the audit in addition to other audit procedures. |
Inquiry of company personnel, by itself, does not provide sufficient audit evidence to reduce audit risk to an appropriately low level for a relevant assertion or to support a conclusion about the effectiveness of a control. |
3 |
Confirmation from third party - A confirmation response represents a particular form of audit evidence obtained by the auditor from a third party |
This is more reliable information and can be cross checked with Client’s records |
There is no surety of getting the information within reasonable time. |
4 |
Recalculation- recalculation consists of checking the mathematical accuracy of documents or records. Recalculation may be performed manually or electronically. |
This ensures accuracy of Audit evidence |
Manual recalculation may results inaccurate audit evidence |
5 |
Analytical Procedures- Analytical procedures consist of evaluations of financial information made by a study of plausible relationships among both financial and nonfinancial data. Analytical procedures also encompass the investigation of significant differences from expected amounts |
Analysis of Financial Statements gives indication of high risk areas and helpful in deciding audit plan |
It requires high skills |
Computer Audit Software program
Computer Audit Software programs is used by an auditor to read magnetic files and to extract specified information from the files. They are also used to carry out audit work in the contents of the file.
Uses of computer audit programs:
Advantages:
Disadvantages:
Following are the best approach of collect Audit Evidence
The auditor must gather sufficient appropriate evidence to support their Audit opinion.
Sufficiency -Quality of the Audit Evidence
Appropriateness – Quality / Relevancy of the Audit Evidence
General principles on appropriateness and reliability:
Why is it important for an auditor to collect evidence? Explain some of the different methods...
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