CHAPTER FIVE

AUDIT EVIDENCE
5.1. Nature of Evidence
Audit evidence is any information used by the auditor to determine whether the information
being audited is stated in accordance with the established criteria. The information varies
greatly in the extent to which it persuades the auditor whether the financial statements are
stated in accordance with Generally Accepted Accounting Principles. Evidence includes
information that is highly persuasive, such as the auditor's count of marketable securities, and
less persuasive information, such as response to questions of client employees.

5.2. The Audit Evidence Decision

A major decision facing every auditor is determining the appropriate types and amounts of
evidence to accumulate to be satisfied that the components of the client's financial statements
and the overall statements are fairly stated. This judgment is important because of the
prohibitive cost of examining and evaluating all available evidence. For example, in an audit
of financial statement, of most organizations, it is impossible for CPA firm to examine the
contents of all computer files or available evidence such as cancelled checks, vendors'
invoices, customer orders, payroll time cards, and the many other types of documents and
orders. The auditor's decision on evidence accumulation can be broken down into the
following four sub decisions.
1) Which audit procedure 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 procedure
1. Audit Procedure: an audit procedure is the detailed instruction for the collection of audit
evidence that is to obtain at some time during the audit. In designing audit procedures, it is
common to spell them out in sufficiently specific to permit their use as instructions during
the audit. For example, the following is an audit procedure for the verification of cash
disbursements:
 Obtain the cash disbursements journal and compare the payer name, amount, and date
on the cancelled checks with the disbursements journal
2. Sample size: Once an audit procedure is selected, it is possible to vary the sample size from
one to all the items in the population being tested. In the audit procedure above, suppose
6,600 checks are recorded in the cash disbursement journal. The auditor may select a
sample size of 200 checks for comparison with the cash disbursement journal. The decision
of how many items to test must be made by the auditor for each audit procedure. The
sample size for any given procedure is likely to vary from audit to audit.
3. Items to select: After the sample size has been determined for an audit procedure, it is still
necessary to decide which items in the population to test. If the auditor decides, for
example, to select 200 cancelled checks fro population of 6,600 for comparison with the
cash disbursement journal, several deferent methods can be used to select the specific
checks to be examined. The auditor could (1) select a week and examine the first 200
checks (2) select the 200 checks with the largest amounts, (3) select the checks randomly,
or (4) select those checks that the auditor thinks are most likely to be in error. Or a
combination of these methods could be used.
4. Timing: Auditor of financial statements usually covers a period such as a year, and an audit
is usually not completed until several weeks or months after the end of the period. The
timing of audit procedures can therefore vary from early in the accounting period to long

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 after it has ended. In part, the timing decision is affected by when the client needs the audit
to be completed.

5.3. Persuasiveness of Evidence

The third standard of fieldwork requires the auditor to accumulate sufficient and competent
evidence to support the opinion issue. Because of the nature of the audit evidence and the
cost consideration of doing au audit it is unlikely that the auditor will be completely
convinced that the opinion is correct. However, the auditor must be persuaded that his/her
opinion is correct with a high level of assurance. By combining all evidence from the entire
audit, the auditor is able to decide when he/she is persuaded to issue and audit report.
The two determines of the persuasiveness of evidence are Competence and sufficiency,
which are taken directly from the third standard of fieldwork.
5.3.1. Competence: Competence of evidence refers to the degree to which evidence can be
considered believable or worthy of trust. If evidence is considered highly competent, it is a
great help in persuading the auditor that financial statements are fairly stated. For example, if
an auditor counted the inventory, that evidence would be more competent than if
management gave the auditor its own figure. In most cases, the term reliability of evidence is
being used synonymously with competence.
Competence of evidence deals only with the audit procedures selected. Competence can not
be improved by selecting a larger sample size or different population items. It can be
improved only by selecting audit procedures that contain a higher quality of one or more of
the following seven characteristics of the competent evidence: Relevance, independence of
provider, effectiveness of client's internal control, auditor's direct knowledge, qualification of
individuals proving the information, degree of objectivity, and timeliness.
1. Relevance: Evidence must pertain to or be relevant to the audit objective that the auditor is
testing before it can be reliable. For example, assume that the auditor is concerned that a
client is failing to bill customers for shipments (completeness objective). If the auditor
selected a sample of duplicate sales invoices and traced each to related shipping
document s, the evidence would not be relevant for the completeness objective and
therefore, would not be considered reliable evidence for that objective. A relevant
procedure would be to trace a sample of shipping documents to related duplicate sales
invoice to determine whether each had been billed. The second audit procedure is relevant
and the first is not because the shipment of goods is the normal criterion used for
determining whether a sale has occurred and should have billed. By tracing from
shipping, documents to duplicate sales invoices, the auditor can determine whether
shipment have been billed to customers. When the auditor traces from duplicated sales
invoices, to shipping documents, it is impossible to fined unbilled shipments.
Relevance can be considered only in terms of specific audit objectives. Evidence may be
relevant to one audit objective but not to a different one.
1. Independence of provider: Evidence obtained from a source outside the entity is more
reliable than that obtained from within. For example, external evidence such as
communication from banks, attorneys, or customers is generally considered more reliable
than answers obtained from inquiries of the client. Similarly, documents that originate
from out side the client's organization are considered more reliable than are those that
originate within the company and have never left the client's organization.
2. Effectiveness of client's internal control: When a client's internal controls are effective,
evidence obtained is more reliable than when they are weak. For example, if internal
control over sales and bills are effective, the auditor could obtain more competent
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 evidence from sales invoices and shipping documents than if the controls were
independent.
3. Auditor's direct knowledge: Evidence obtained directly by the auditor through physical
examination, observation, computation, and inspection is more competent than
information obtained indirectly. For example, if the auditor calculates the gross margin as
a percentage of sales and compares it with previous periods, the evidence would be more
reliable than if the auditor relied on the calculations of the controller.
4. Qualification of individuals providing the information: Although the source of
information is independent, the evidence will not be reliable unless the individual
providing it is qualified to do so. Therefore, communications from attorneys and bank
confirmations are typically more highly regarded than accounts receivable, confirmations
from persons not familiar with the business world. Also, evidence obtained directly by
the auditor may not be reliable if he/she lacks the qualification to evaluate the evidence.
5. Degree of Objectivity: Objective evidence is more reliable than evidence that requires
considerable judgment to determine whether it is correct. Examples, of objective evidence
includes confirmation of accounts receivables and bank balances, the physical count of
securities and cash, and adding (footing) a list of accounts payable to determine whether
it agrees with the balance in the general ledger. Example of subjective evidence include a
letter written by clients attorneys discussing the likely outcome of outstanding lawsuit
against the client, observation obsolescence of inventory during physical examination,
and inquires of the credit manager about the collectibility of non current account
receivable when the reliability of subjective evidence is began evaluated, the qualification
of the person providing the evidence are important.
6. Timeliness: The timeliness of audit evidence can refer either to when it is accumulated or
to the period covered by the audit. Evidence is usually more reliable for balance sheet
accounts when it is obtained as close to the balance sheet date as possible. For example,
the auditor's count of marketable securities on the balance sheet date would be more
reliable than the count two months earlier. For income statement accounts, evidence is
more reliable if there is a sample from the entire period under audit rather than from only
a part of the period.

5.3.2. Sufficiency: The quantity of evidence obtained determines its sufficiency. Sufficiency
of evidence is measured primarily by the sample size the auditor selects. For a given audit
procedure, the evidence obtained from a sample size of 200 would ordinarily be more
sufficient than from a sample of 100. Several factors determine the appropriate sample size in
audit.
The two most important ones are:
1. The auditor's expectation of misstatement
2. Effectiveness of internal control
If the auditor concludes that there is a high likelihood of obsolete inventory because of the
nature of the client's industry, the auditor would sample more inventories for obsolescence in
an audit such as this than one where the likelihood of obsolescence was low. Similarly, if the
auditor concludes that the client's internal control is effective, over fixed assets, a smaller
sample size in the audit of acquisition of fixed assets is warranted.
In addition to sample size, the individual items tested affect the sufficiency of evidence.
Samples containing population items with larger dollar values, items with a large likelihood
of misstatement, and items that are representative of the population are usually considered
sufficient. In contrast, most auditors would usually consider samples insufficient that contain

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only the largest dollar items from the population unless these items make up a large portion
of the total population amount.
Persuasiveness of evidence can be evaluated only after considering the combination of
competence and sufficiency, including the effects of the factors influencing competence and
sufficiency. A large sample of evidence provided by an independent party is not persuasive
unless it is relevant to the audit objective being tested. A large sample of evidence that is
relevant but not objective is not persuasive. Similarly, a small sample of only one or two
piece of highly competent evidence also typically lacks persuasiveness. The auditor must
evaluate the degree to which both competence and sufficiency, including all factors
influencing them, have been met when determining the persuasiveness of evidence.
Persuasiveness and cost: in making decisions about evidence for a given audit, both
persuasiveness and cost must be considered. It is rare when only one type of evidence is
available for varying information. The persuasiveness and cost of all alternatives should be
considered before selecting the best type or types. The auditor's goal is to obtain a sufficient
amount of competent evidence at the lowest possible total cost. However, cost is never an
adequate justification for omitting a necessary procedure or not gathering sample size.

5.4. Types of Audit Evidence

In making which audit procedures to use, the auditor can choose from seven broad categories
of evidence. These categories, called types of evidence, are listed below and defines are
discussed in this section.
1. Physical examination
2. Confirmation
3. Documentation
4. Observation
5. Inquiry of the client
6. Re-performance
7. Analytical Procedure
5.4.1. Physical Examination: Is the inspection or count by the auditor of tangible assets.
This type of evidence is most often associated with inventory and cash, but it is also
applicable to the verification of securities, notes receivable, and tangible fixed assets. The
distinction between the physical examination of assets, such as marketable securities and
cash, and the examination of documents such cancelled checks and sales documents, is
important for auditing purpose. If the object being examined, such as a sales invoices has no
inherent value, the evidence is called documentation. For example, before check is signed, it
is documented; after it is signed, it becomes an asset; and when it is cancelled, it becomes a
document again. Typically, physical examination of the checks can occur only while the
check is an asset. Physical examination, which is a direct means of verifying that an assets
actually exists (existence objective), is regarded as one of the most reliable and useful types
of audit evidence. Generally, physical examination is an objective means of ascertaining both
the quality and the description of the assets. In some case, it is also a useful method for
evaluating an asset's condition or quality. However, physical examination is not sufficient
evidence to verify that existing assets are owned by the client (rights and obligations
objective), and in many cases the auditor is not qualified to judge qualitative factors such as
obsolescence or authenticity (net realizable value objective). Also, proper valuation for
financial statement purpose usually cannot be determined by physical examination (accuracy
objective).
5.4.2. Confirmation: Describes the receipt of a written or oral response from an independent
third party verifying the accuracy of information that was required by the auditor. The request

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is made to the client, and the client asks the independent third party to respond directly to the
auditor. Because the confirmation comes from sources independent of client, they are a
highly regarded and often used type of evidence. However, confirmations are relatively costly
to obtain and may cause some inconvenience to those asked to supply them. Therefore, they
are not used in every instance in which they are applicable. Because of the high reliability of
confirmations, auditors typically obtain written response rather than oral ones when it is
practical. Written confirmations are easier for supervisors to review, and they provide better
support if it is necessary to demonstrate that a confirmation was received.
Whether or not confirmations should be used depends on the reliability needs of the
situation as well as the alternative evidence available. Traditionally, confirmations are seldom
used in the audit of fixed asset additions because these can be verified adequately by
documentation and physical examination. Similarly, confirmations are ordinarily not used to
verify individual transactions between the organizations, such as sales transactions, such as
sale transactions, because the auditor can use documents for that purpose.
SAS 67 (AU 330) identifies three common types of confirmation used by auditors.
A Positive confirmation with a request with a request for information to be supplied by
the recipient. A positive confirmation means that the recipient is requested to return
confirmation in all circumstances. When the auditor does not receive a response to a positive
confirmation, it is common to send a second or third request and in some cases even request
the client to contact the independent third party and ask for a response to the auditor. If other
efforts failed, or are considered too costly, the auditor may be able to use different evidence
to satisfy the audit objective. This evidence is called alternate procedure.
Positive confirmation with the information to be confirmed includes on the form. This
type of confirmation is considered less reliable than the first one because the recipient may
sign the confirmation and return it without carefully examining the information
Negative confirmation. A negative confirmation means that the recipient is requested to
respond only when the information is incorrect. Because the confirmations are considered
significant evidence only when returned, negatives are considered less competent than
positive confirmations.
Note although confirmation is not required for any accounts other than account receivable,
this type of evidence is useful in varying many type of information. This major types of
information that are often confirmed, along with the source of confirmation are indicated as
follows.
Information Source
Cash in bank Bank
Accounts receivable Customers
Notes Receivable Maker
Owned inventory on Consignment Consignee
Accounts Payable Creditor
Notes Payable Lender
Advance from Customers Customer
Mortgage Payables Mortgager
Bonds Payable Bondholder
Shares Outstanding Register and transfer agent
Insurance Coverage Insurance company
Contingent Liabilities Bank, Lender and Client's legal counsel
Bond Issuance agreements Bondholder
Collateral held by Creditors Creditor

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To be considered reliable evidence, confirmations must be controlled by the auditor from the
time they are prepared until they are returned. If the clients controls the preparation of the
confirmation, does the mailing, or, receives the responses, the auditor has lost control and
with it independence; thus, the reliability of the evidence is reduced.
5.4.3. Documentation: Documentation is the auditor's examination of the client's documents
and records to substantiate the information that is or should be included in the financial
statements. The documents examined by the auditor are the records used by the client to
provide information for conducting its business in an organized manner. Because each
transaction in the client's organization is normally supported by at least one document, there
is a large volume of this type of evidence available. For example, the client often retains a
customer order, a shipment document, and duplicate sales invoices for each sales transaction.
These same documents are useful evidence for verification by the auditor of the accuracy of
the client's records for sales transaction. Documentation is form evidence widely used in
every audit because it is usually readily available to the auditors at a relatively lower cost.
Some times it is the only reasonable type of evidence available.
Documents can be conveniently classified as internal and external.
An internal documents is one that has been prepared and used within the client's organization
and is retained without ever going to outside party such as a customer or a vendor. Examples
of internal documents include duplicate sales invoices, employees' time reports, and
inventory receiving reports.
An external document is one that has been in the hands of some one outside the client's
organization who is a party to the transaction being documented, but which is either currently
in the hands of the client or readily accessible. Example of this type of external documents
vendors' invoices, cancelable notes payable and insurance policies.
The primary determinants of the auditor's willingness to accept a document as reliable
evidence is whether it is internal or external and, when internal, whether it was created and
processed under condition of good internal control . Internal documents created and
processed under condition of weak internal control may not constitute reliable evidence.
Because external documents have been in the hands of both the client and another party to the
transaction, there is some indication that both members are in agreement about the
information and the condition stated on the documents. Therefore, external documents are
considered more reliable evidence than internal once.
When auditors use documentation to support recorded transactions or amounts it is often
called Vouching.
5.4.4. Observation: Is the use of the senses to assess certain activities. Throughout the audit,
there are many opportunities to exercise sight, hearing, touch, and smell to evaluate a
wide range of items. For example, the auditor may tour the plant to obtain a general
impression of the client's facilities, observe whether equipment is rusty to evaluate
whether it is obsolete, and which watch individuals perform accounting tasks to
determine whether the person assigned responsibility is performing it. Observation is
rarely sufficient by itself because, there is a risk that the client personnel involved in those
activities are aware of the auditor's presence. Therefore, they may perform their
responsibilities in accordance with company policy, but resume normal activities once the
auditor is not incite.

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 5.4.5. Inquiries of the client: Inquiry is the obtaining of written or oral information from
the client in response to questions from the auditor. Although considerable evidence is
obtained from the client through inquiry, it usually cannot be regarded conclusive because
it is not from an independent source and may be biased in the client's favor. Therefore,
when the auditor obtains evidence through inquiry, it is normally necessary to obtain
further corroborating evidence though other procedures.
5.4.6. Re-performance: As the word implies, re-performance involves rechecking a sample
of the computations and transfer of information made by the client during the period
under audit. Rechecking of computation consists of testing the client's arithmetical
accuracy. It includes such procedures as extending sales invoices and inventory, adding
journals and subsidiary records, and checking the calculation of depreciation expense and
prepaid expenses. Rechecking of transparence of information consists of tracing amounts
to be confident that when the same information is included in more than one place, it is
recorded at the same amount each time.
Analytical Procedures: Analytical procedures are defined by SAS (AU 329) as evaluations
of financial information made by a study of relationships among financial and non financial
data…..involving comparisons of recorded amounts to expressions developed by auditors. It
uses comparisons and relationships to assess whether account balances or other data appears
reasonable. An example is comparing the gross margin percent in the current year with the
preceding years. The auditing standard board has concluded that analytical procedures are so
important that they required during the planning and completion phase on all audit.
Importance of Analytical Procedures
1. Enable to understand client's industry and business
Generally, an auditor considers knowledge and experience about a client company obtained
in prior years as a starting point for planning the audit for the current year. By conducting
analytical procedures in which the current year's unaudited information is compared with
prior years' audited information, changes are highlighted. The changes represent important
trends or specific events, all of which will influence audit planning.
For example, a decline in gross margin percentages overtime may indicate increasing
competition in the comp65any's market area, and the need to consider inventory pricing more
carefully during the audit. Similarly, an increase in the balance in fixed assets may indicate a
significant acquisition that must be reviewed.
2. Enable to assess the entity's ability to continue as going concern
Analytical procedures are often useful as an indication that the client company encountering
severe financial difficulty. The likelihood of financial failure must be considered by the
auditor in the assessment of audit related risks, as well as in connection with management's
use of the ongoing concern assumptions in preparing the financial statements. For example, if
a higher than normal ratio of long-term debt to net worth is combined with a lower than
average ratio, of profits to total assets, a relatively high risk of financial failure may be
indicated. Not only would such condition affect the audit plan, they may indicate that
substantial doubt exists about the entity's ability to continue as going concern, which could
require a report modification.
3. It indicates the presence of possible misstatement in the financial statements
Significant unexpected difference between the current year's unaudited financial data and
other data used in comparisons are commonly called unusual fluctuations. Unusual
fluctuations occur when significant difference are not expected but do exist or when
significant differences are expected but do not exist. In either case, one of the possible
reasons for unusual fluctuations is the presence of an accounting misstatement. Thus, if the

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unusual fluctuation is large, the auditor must determine the reason for it and must be satisfied
that the cause is a valid economic event and not a misstatement. For example, in comparing
the ratio of the allowance for uncollectible accounts receivable to gross accounts receivable,
with that of the previous year, suppose that the ratio had decreased while, at the same time,
accounts receivable turnover also decreased. The combination of these two pieces of
information would indicate a possible understatement of the allowance. This aspect of
analytical process is often called attention directing because it results in more detailed
procedures in the specific audit areas where misstatements might be found.
4. Reduced Detailed audit test: When the analytical procedure reveals no unusual
fluctuations, the implication is that the possibility of a material misstatement is minimized. In
that case, the analytical procedure constitutes substantive evidence in support of the fair
statement of the related account balances, and it is possible to perform fewer detailed tests in
connection with those accounts.
When to perform analytical Procedures? /Timing of analytical procedures
Analytical procedures may be performed at any of three times during an engagement. Some
analytical procedures are required to be performed in the planning phase to assist in
determining the nature, extent, and timing of work to be performed. Performance of
analytical procedures during planning helps the auditor identify significant matters requiring
special consideration later in the engagement.
Analytical are often done during the testing phase of the audit in conjunction with other audit
procedures. For example, the prepaid portion of each insurance policy might be compared
with the same policy for the previous year as a part of doing test of prepaid insurance.

Analytical procedures are also required to be done during the completion phase of the audit.
Such tests are useful at that point as final review for material misstatements or financial
problems are, and to help the auditor take a final "objective look" at the financial statement
that have been audited. It is common for a partner to do analytical procedures during the final
review of working papers and financial statements. Typically a partner has good
understanding of the client and its business because of ongoing relationships. Knowledge
about the client's business combined with effective analytical procedure is a way to identify
possible oversight in an audit.

5.5. Types of analytical Procedure

The usefulness of analytical procedures as audit evidences significantly on the auditors
developing an expectation of what a record account balance or ratio based account balance
should be, regardless of the type of analytical procedures used. Auditors develop an
expectation of an account balance or ratio by considering information from prior periods,
industry trends, client-prepared budget expectations, and non financial information. The
auditor typically compares the client's balance and ratios with the expected balances and
ratios using one or more of the following types of analytical procedures:
i. Compare client and industry data
ii. Compare client data with similar prior period data
iii. Compare client data with client determined expected results
iv. Compare client data with auditor-determined expected results
v. Compare client data with expected results, using non financial data
I. Compare client and industry data
Dear students, let us consider the following example to briefly see how comparison of client's
data with industry data will be made.

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 If we look only at client information for the two ratios shown, the company appears to be
stable with no apparent indication of difficulties. However, if the auditor uses industry data to
develop expectations about the two ratios, for 2002, the auditor would expect both ratios for
the client to increase. Although these two ratios by them selves may not indicate significant
problems, the example illustrates how developing expectations using industry data may
provide useful information about the client's performance. For example, the company may
have lost market share, its pricing may not be competitive, and it may have incurred
abnormal costs, or may have obsolete items in inventory.

The most important benefits of using industry comparison are as an aid to understanding the
client's business and as an indication of the likelihood of financial failure.
A major weakness in using industry ratios for auditing is the difference between the nature
of the client's financial information and that of the firms making up the industry totals.
Because, the industry data are broad averages, the comparison may not be meaningful. Often
the client's line of business is not the same as the industry standards. In addition, different
comparisons follow different accounting methods and this affects the comparability of the
data.
II. Compare client data with similar prior period data
This is concerned with comparing the current data with the past data of the client. Suppose
that the gross margin percent for a company has been between 26 and 27 percent for each of
the past four years, but is 23 percent in the current year. This decline in the gross margin a
concern to the auditor if there is no expectation of a decline. The cause of the decline would
be a change in economic condition. However, it could also be caused by misstatements in the
financial statements such as sales or purchase cutoff errors, unrecorded sales, overstated
account payable, or inventory costing error. The auditor should determine the cause of the
decline in gross margin and consider the effect, if any, on evidence accumulation.
There are a wide variety of analytical procedures in which client data are compared with
similar data from one or more prior periods. These are:
 Comparing the current year's balance sheet with that of the preceding year.
 Comparing the detail of total balance sheet with similar detail for the preceding years.
 Compute ratios and percentages relation ships for comparison with previous years.
III. Compare client data with client determined expected results
Most Companies prepare budgets for various aspects of their operations and financial results.
Because budgets represent the client's expectation for the period, an investigation of the most
significant areas in which differences exist between the budgeted and the actual result may
indicate potential misstatements. In the audit of the local, state or federal governmental units
use this type of analytical procedure. When the client's data are compared with the budgets,
there are two special concerns.
i. The auditor must evaluate whether the budgets were realistic plans. In some organizations,
budgets are prepared with little care and therefore, are not realistic expectations. Such
information has little value as audit evidence. Hence, discussing budget procedures with the
client personnel is used to satisfy this concern.
ii.The possibility that current financial information was changed by client personnel to confirm
to the budget. If that is occurred, the auditor will find no difference in comparing actual data
with budgeted data even if there are misstatements in the financial statement. Therefore,
assessment of control risk and detailed audit tests of actual data are usually done to minimize
the likelihood of this concern.

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IV. Compare client data with auditor-determined expected results
The second common type of comparison of client data with expected results occurs when the
auditor calculates the expected balance for comparison with the actual balance. In this type of
analytical procedure, the auditor makes an estimate of what an account balance should be by
relating it to some other balance sheet or income statement account or accounts by making a
projection based on historical data. An example of calculating an expected value based on
relationships of accounts is the dependence calculation of interest expenses on long-term
notes payable by multiplying the ending monthly balance in notes payable by the monthly
interest rates. An example of using historical trend would be when the moving average of the
allowance for uncollected accounts receivable as a percentage of gross accounts receivable
is applied to the balance of gross accounts receivable at the end of the audit year to determine
an expected values for the current allowance.
V. Compare client data with expected results, using non financial data
Here, the non-financial data are used by the auditor to verify whether the financial statement
is fairly stated.
Example, in audit of a hotel, auditor can determine the number of rooms, room rate for each
room, and occupancy rate. Using those data, it is relatively easy to estimate total revenue
from rooms to compare with the recorded revenue. The same approach can sometimes be
used to estimate such accounts as tuition revenue at university (average tuition times
enrolment), factory payroll (total hours worked times wage rate), and cost of materials sold
(units sold times material cost per unit).

5.6. Summary of Audit Procedures and Types of Evidence

Term and Definition Illustrative Audit Procedure Types of
Evidence
Examine a sample of vendors to
Examine- A reasonable detailed determine whether the goods and
study of a document for record services are reasonable and of the Documentation
to determine specific fact about type normally used by the client's
it business
Scan- a less detailed examination Scan the sales journal, looking for
of documents or record to large an unusual transaction Analytical
determine whether there is procedure
something unusual warning
further investigation
Read the minutes of board of
Read- an examination of written director's meeting and summarizes
information to determine facts all information that is pertinent to Documentation
pertinent to audit. financial statement in a working
paper.
Calculate the inventory turnover
Compute- a calculation done by Rations and compare with those of Analytical
the auditor independent to the the previous years as a test of procedure
client. inventory obsolescence.
Re-compute the unit sales price

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 Re-compute- calculation done by times the number of units for a Re-performance
the auditor independent of the sample of duplicate sales invoices
client and compare the totals with the
calculations
Foot- Addition of numbers to Foot the sales journals for a one
determine whether the totals is month period and compare all Re-performance
the same as the client 6. totals with the general ledger.
Timeliness: 's
Trace- An instruction normally Trace a sample of sale transaction
associated with documentation from the sales journal to sales Documentation
or performance. The instruction invoices and compare customer
should state what the auditor is names, date, and the total birr
tracing and when it is traced value of sales.
from and to. Often an audit
procedure that includes the term Trace postings from the sales Re-performance
trace will also include a second journals ledger accounts.
instruction such as compare or
recalculation
Compare- comparison of Select a sample of sales invoices
information in two different and compare the unit selling prices
locations. The instruction should as stated on the invoice to the list Documentation
state which information is being of units of selling prices
compared in as much detail as authorized by management.
practical.
Count- The act of observation Count petty cash on hand as the
should be associated with the balance sheet date. Physical
type of evidence defined as examination
physical examination.
Observe- The act of observation Observe whether two inventory
should be associated with the count team independently count Observation
type of evidence defined as and record inventory costs.
observation.
Inquire- The act of inquiry Inquire of management whether
should be associated with the there is any obsolete inventory on Inquiry of client
type of evidence defined as hand at the balance sheet date.
inquiry.
Vouch- The use of documents to Vouch a sample of recorded
verify recorded transactions or acquisition transactions to vendors' Documentation
amounts. invoice and receiving reports.

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