What Is Auditing Show?
Auditing evidence is the information collected for review of a company’s financial transactions, internal control practices, and other memos necessary for the certification of financial statements by an auditor or certified public accountant (CPA). The amount and type of auditing evidence observed vary considerably based on the type of firm being audited as well as the required scope of the audit.
- Auditing proof is the information collected by an auditor to ascertain the accuracy and compliance of a company’s financial statements.
- The auditing evidence is meant to tolerate the company’s claims made in the financial statements and their adherence to the accounting laws of their legal jurisdiction.
- Standards of auditing evidence include bank accounts, management accounts, payrolls, bank statements, invoices, and receipts.
- Fitting auditing evidence should be sufficient, reliable, provided from an appropriate source, and relevant to the audit at hand.
Armistice Auditing Evidence
The goal of any audit is to determine whether a company’s financial statements comply with generally received accounting principles (GAAP), international financial reporting standards (IFRS), or another set of accounting standards applicable to an being’s jurisdiction. Publicly traded companies are generally required to present fully audited financial statements to shareholders periodically, and ergo the compilation and organization of auditing evidence are essential for auditors and accountants to do their work. In short, auditing evidence is meant to fix up with provision auditors with the information for them to make the judgment on whether or not financial statements are accurate and true.
Auditing substantiation is defined as a term to protect investors by promoting transparent, accurate, and independent audit reports. The Public Company Accounting Administration Board (PCAOB), created by the Sarbanes-Oxley Act of 2002, defines auditing evidence as all the information that can be used by auditors to borrow their decision on the quality and accuracy of a company’s financial statements. The auditing evidence supports and verifies the final advice provided by management in the financial statements. It can also contradict it if there are errors or fraud.
Examples of auditing evidence comprehend bank accounts, management accounts, payrolls, bank statements, invoices, and receipts.
Characteristics of Auditing Evidence
Information auditing evidence can be measured by the extent of the following characteristics:
Sufficiency: Sufficiency takes into account whether or not the consequential provided is of an adequate quantity that would allow auditors to make an accurate judgment. If an auditor was given ethical one bank statement of a company, it would not be enough to make any determinations on the financial standing of that company.
Reliability: Reliability seeks to end whether or not the material can be trusted and counted on for forming an opinion. Reliability typically factors from the source of the information.
Documentation: The source of accounting evidence can be obtained directly from the company or externally. Externally sourced information is generally evaluated as more trustworthy and is therefore preferred.
Nature: Nature refers to the type of information that is received. For example, the data can be provided through legal documents, presentations, orally from employees, or through a physical confirmation.
Relevance: Depending on the sort of audit being conducted, how pertinent the information received in its relation to the overall analysis is a guiding factor.
In general, auditors be inclined information that is written as opposed to provided orally; information that is from a third-party source as opposed from interior the company; original documents as opposed to copies of those documents; a strong understanding of the firm by the auditor to request suitable auditing evidence; firsthand observations by the auditor as opposed to documentation provided via another source.
Example of Auditing Proof
Company ABC has enlisted the auditing services of the accounting firm, Anderson Brothers, to have their financial statements from the economic year 2020 audited. The auditor begins working on the audit and requests information regarding reported revenues and bank rests. To obtain accurate and reliable information, regarding revenues, the auditor requests sales receipts and invoices and a physical analysis of inventory. Regarding bank balances, the auditor requests all of the bank statements of the company directly from ABC’s bank. All of this advice; the receipts, invoices, physical observations, and bank statements are regarded as auditing evidence.