Audit Evidence
Chapter 7
Generally Accepted Auditing Standards
Third Standard of Field Work
Sufficient competent evidential matter is to be
obtained through inspection, observation,
inquiries, and confirmations to afford a
reasonable basis for an opinion regarding the
financial statements under audit.
Audit Evidence Decisions
1. Which audit procedures to use
2. What sample size to select for a given procedure
3. Which items to select from the population
4. When to perform the procedures
Audit Program
It includes a list of the audit procedures
the auditor considers necessary.
Sample sizes
 Items to select
 Timing of the tests

Most auditors use computers to facilitate
the preparation of audit programs.
Persuasiveness of Evidence
Competence and sufficiency are determinants
of the persuasiveness of evidence.
Factors affecting competence include:
Relevance to audit objective
 Independence of provider
 Effectiveness of internal controls
 Auditor’s direct knowledge
 Qualifications of providers
 Degree of objectivity
 Timeliness

Table 7-2, (p. 167)
Types of Audit Evidence
1.
2.
3.
4.
5.
6.
7.
Physical examination (tangible assets)
Confirmation (positive and negative)
Documentation
Analytical procedures
Inquiries of the client
Reperformance
Observation
Confirmations and Information Often Confirmed
Confirmations may be positive or negative.
Procedures for non-response positives
Information
Source
Assets
Cash in bank (example)
Accounts receivable
Notes receivable
Owned inventory out on consignment
Inventory held in public warehouses
Cash surrender value of life insurance
Bank
Customer
Maker
Consignee
Warehouse
Insurance co.
Information Often Confirmed
Information
Source
Liabilities
Accounts payable
Notes payable
Advances from customers
Mortgages payable
Bonds payable
Creditor
Lender
Customer
Mortgagor
Bondholder
Information Often Confirmed
Information
Owners’ Equity
Shares outstanding
Other Information
Insurance coverage
Contingent liabilities
Bond indenture agreements
Collateral held by creditors
Source
Registrar and
transfer agent
Insurance co.
Bank, lender,
and clients
legal counsel
Bondholder
Creditor
Other Forms of Evidence
Documentation – Client’s documents and records
Internal vs. External documents
Tracing vs. Vouching – see next slide
Tracing vs. Vouching
(Figure 6-7 is from another text)
Inspection of Documents or Records
Vouching
Tracing
Note: students should understand the differences
between tracing and vouching.
Reliability of Documentary Evidence
(Figure 6-5 is from another text)
Other Forms of Evidence: Analytical
procedures
Importance of context – understanding the
client’s business and industry
Analytical procedures are used for:
• Assessing going concern
• Finding possible misstatements in the financials
• Reducing detailed audit tests
Other Forms of Evidence
Inquiries of the client – written or oral
Reperformance – verifying calculations or
information processing
Observation
Competence of Types of Evidence,
Table 7-4 (p. 172)
Terms and Types of Evidence,
Table 7-6, (p. 175)
Terms
Type of Evidence
Examine
Scan
Read
Compute
Recompute
Foot
Documentation
Analytical procedures
Documentation
Analytical procedures
Reperformance
Reperformance
Terms and Types of Evidence
Terms
Type of Evidence
Trace
Documentation/
Reperformance
Documentation
Physical examination
Observation
Inquiries of client
Documentation
Compare
Count
Observe
Inquire
Vouch
Audit Documentation
Audit documentation is the principal record
of auditing procedures applied, evidence
obtained, and conclusions reached by
the auditor in the engagement.
Audit Documentation
Purposes of audit documentation – primary
means to support that the audit was
conducted in accordance with GAAS.
Ownership of audit files
Confidentiality of audit files – rule 301, chapter 4.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act
requires auditors of public
companies to prepare and
maintain audit working
papers for a period of no
less than seven years.
Audit File Contents and Organization
Financial
Statements and
Audit Report
Robinson Associates
Trial Balance
12/31/05
Cash
Accounts Receivable
Prepaid Insurance
Interest Receivable
$165,237
275,050
37,795
20,493
Working
Trial Balance
Adjusting
Journal Entries
Contingent
Liabilities
Analytical
Procedures
Test of Controls
& Substantive
TOT
Internal
Control
General
Information
Operations
Liabilities
and Equity
Assets
Audit
Programs
Permanent
Files
Permanent Files
These files are intended to contain data of a
historical or continuing nature pertinent to the
current audit. Examples include:
• Articles of incorporation
• Loan agreements
• Documents related to understanding I/C
• Leases
Current Files
Audit program
General information
Working trial balance
Adjusting and reclassification entries
Supporting schedules
Relationship of Audit Documentation
to Financial Statements
FINANCIAL STATEMENTS
Cash
122
Acc.
………………….
WORKING TRIAL BALANCE
Prelim. AJE’s
Final
Cash
212
(90)
122
LEAD SCHEDULE – CASH
Per G/L
Petty Cash A-2
5
Cash in Bank:
General A-3
186
Payroll A-4
21
212
AJE’s
Expense
90
Cash
AJE’s
(90)
(90)
90
A-1
Final
5
96
21
122
Relationship of Audit Documentation
to Financial Statements
LEAD SCHEDULE – CASH
Per G/L
Petty Cash A-2
5
Cash in Bank:
General A-3
186
Payroll A-4
21
212
A-2
Cash Count Sheet
A-3/1
Confirmation
A-3
Bank Reconciliation
A-3/2
O/S Check List
AJE’s
(90)
(90)
A-1
Final
5
96
21
122
A-4
Bank Reconciliation
A-4/1
Confirmation
A-4/2
O/S Check List
Types of Supporting Schedules
Analysis
Trial balance or list
Reconciliation of amounts
Tests of reasonableness
Types of Supporting Schedules
Summary of procedures
Examination of supporting documents
Informational
Outside documentation
Characteristics of Audit Documentation
Each audit file should be properly identified.
Documentation should be indexed and
cross-referenced.
Completed documentation must clearly indicate
the audit work performed.
It should include sufficient information.
It should plainly state the conclusions reached.
Effect of E-commerce
Audit evidence is increasingly in electronic form.
Auditors must evaluate how electronic information
affects their ability to gather evidence.
Auditors use computers to read and examine
evidence.
Software programs are typically Windows-based.