Audit evidence is information collected by the auditor to support the auditor’s opinion or conclusion on the financial statements of the entity.
to be useful the audit evidence should be both appropriate and sufficient.
appropriateness of the audit evidence measure the quality of the evidence which is its reliability and relevancy.
sufficiency of audit evidence is the measure of its quantity that is the audit evidence must be in the quality that support the auditor conclusion regarding the assertions in the financial statements
Audit evidence can be obtained either through basic accounting records or documents obtained from third parties upon request by the auditor. This technique of obtaining information from the third part is normally referred to as direct confirmation.
The quality of audit evidence generated by direct confirmation is very high because:
It is obtained from independent external sources and audit evidence is more reliable when it is obtained from independent sources outside the entity.
It is documentary evidence and audit evidence is more reliable when it exists in documentary form, whether paper, electronic or another medium. Typically, 3rd party confirmation calls for the evidence to be received
through the Debtor’s circularization process and the Bank Standard letter.
Examples other than debtors’ confirmation techniques that might also be used are as follows:
- Bank balances and other information from bankers
- Inventories held by third parties
- Property deeds held for safe keeping by third parties or purchased from stock brokers but not delivered at the end of the reporting period
- Loans from lenders
- Accounts payable balances