Business Definition for: auditing evidence
auditing evidence
proof the auditor uses to substantiate a recorded item so that proper reliance may be placed on financial statement figures.Proof of accounting data includes examining source documents in support of a transaction. The degree to which evidence gathering is necessary partly depends on the quality of the client's internal control system. Also, the trend in an account should be looked at over time as a basis for determining the extent of testing required. For example, if travel expense went from 2% of sales last year to 25% of sales this year, this inconsistency requires close examination. Test checks of accounts and ransactions are necessary. Evidence can be obtained through various means such as physical verification of inventory records or confirmation letters sent to verify recorded amounts of accounts receivable.
See also
analytical review
,
auditing procedure
Related Terms:
auditing process that tests relationships among accounts and identifies material changes. It involves analyzing significant ratios and trends for unusual change and questionable items. Included in the analytical review process are: (1) reading important documents and analyzing their accounting and financial effects; (2) reviewing the activity in an account between interim and year-end, especially noting entries out of the ordinary; (3) comparing current period account balances to prior periods as well as to budgeted amounts, noting reasonableness of account balances by evaluating logical relationships among them (i.e., relating payables to expenses, accounts receivable to sales). In essence, therefore, analytical review involves reading the financial statement, scanning the figures, making comparisons to prior periods, appraising logical relationships among accounts, tracing financial statement items to the financial statements, and analyzing the overall process. The degree of analytical review required depends on the materiality of the item, available supporting data, and the quality of the internal control system. Analytical review assists in assuring the accuracy and reliability of the accounts.
auditor technique in gathering auditing evidence to substantiate the reliability of the accounting records. The auditor evaluates whether the information presented is logical and reasonable. Examples of auditing procedures are observing assets to verify existence and amount (e.g., fixed assets), collecting independent confirmations from external parties (e.g., bank confirmation), evaluating internal control, appraising management's activities, and obtaining management representations. The audit procedures to be followed on an engagement are indicated in the audit program. Thework papers indicate what has been done on the audit.
Copyright © 2005, 2000, 1995, 1987 by Barron's Educational Series, Inc., Reprinted by arrangement with Publisher.
