Discuss any four types of audit evidence with practical examples?

Answer 1

1. Documentary evidence: This includes documents and records that provide support for the assertions made by the auditee. For example, bank statements, contracts, invoices, purchase orders, and financial statements can all serve as documentary evidence.

Example: During an audit of a company's financial statements, the auditor may review bank statements to verify the cash balance reported on the balance sheet. By comparing the recorded transactions on the bank statement with the company's accounting records, the auditor can ensure that the cash balance is accurately stated.

2. Physical evidence: This refers to tangible assets or materials that the auditor can physically examine or observe. It is commonly used in audits of inventory, fixed assets, and other tangible resources.

Example: In an audit of a manufacturing company's inventory, the auditor may physically count and examine the existence and condition of the inventory items. This physical inspection provides direct evidence that the inventory is accurately stated and supports the assertions made by the company.

3. Analytical evidence: This involves the use of data analysis techniques to assess the reasonableness and consistency of financial information. It includes the comparison of financial data over time, industry benchmarks, or with similar companies to identify trends, patterns, or anomalies.

Example: During an audit of a retail store's sales revenue, the auditor can analyze sales data from previous periods and compare it with current sales figures. Any significant deviations or unusual patterns could indicate potential misstatements that require further investigation.

4. Testimonial evidence: This evidence is gathered through interviews and discussions with individuals who have knowledge or involvement in the audited area. Testimonal evidence can provide insights, explanations, or additional details that support or contradict the assertions made by the auditee.

Example: In an audit of a company's internal controls, the auditor may interview key personnel involved in the control processes, such as managers, supervisors, and employees. These interviews can help the auditor understand the implementation and effectiveness of the internal controls and provide supporting evidence for their assessment.