Audit evidence

The audit teams obtain sufficient, relevant and reliable evidence. Sufficiency is the measure of the quantity of audit evidence, relevancy is the ability to answer the audit objective or assertion and reliability relates to credibility and consistency.

Compliance audit Financial audit Performance audit Review

Concept

Ref: 16.210

Principle

The audit team aims to obtain sufficient, relevant and reliable audit evidence to ensure that the contents of the audit report stand up to critical review. When providing an audit opinion as in Statement of Assurance, the evidence should allow reaching a conclusion with reasonable assurance.

Definitions

Audit evidence is all of the information used by the auditor to support the audit findings and conclusions and, where required, arrive at an audit opinion. Information is data collected from documents, databases or other sources and analysed by the auditors. Data, information and evidence are interrelated.

Data, information and evidence are interrelated.

Sufficiency

Sufficiency relates to the quantity of audit evidence - auditors should collect enough evidence to enable them to substantiate their conclusions in relation to the audit objective. Audit evidence is sufficient if there is enough of it to persuade a reasonable person that the audit findings and conclusions are valid, and that the recommendations are appropriate. Auditors typically do not examine all data available. This would be impractical, prohibitively costly and unnecessary, as conclusions and opinions can generally be reached by using sampling and other means of selecting items for testing. There is no formula to express in absolute terms how much evidence there must be for it to be considered sufficient. However, the quantity needed is affected by the degree of risk and the quality of such audit evidence - the higher the quality, the less evidence may be required.

Reliability

Audit evidence is reliable if it fulfils the necessary requirements for credibility, if the same findings arise when tests are carried out repeatedly or when information is obtained from different sources. The reliability of audit evidence is affected by its source and type and is dependent on the circumstances under which it is obtained. While recognising that exceptions may exist, audit evidence is considered more reliable when it is:

provided by original documents rather than photocopies or faxes
in documentary form, whether paper, electronic, or another medium, rather than verbal statements. However, correspondence, memos and reports may be incomplete, ambiguous or even incorrect, whilst interviews can provide an in-depth understanding not only of facts, but also of constraints and the environment. Nevertheless, evidence collected from interviews needs to be corroborated from other sources;
obtained directly by the auditor (e.g. observation of the application of a control, computation) rather than indirectly (e.g. enquiry about the application of a control);
obtained from independent sources outside the entity (e.g. confirmation received from a third party), as opposed to being generated within the auditee organisation or if the third-party is related to the auditee organisation;
subject to effective related controls if internally generated, because strong internal controls within the auditee organisation can improve the quality of information obtained. Testing the auditee's internal controls over information, including general and application controls over computer-processed data can help in evaluating accuracy and completeness (reliability) of such information.

Sources of evidence

Audit evidence may emanate from the following sources:

Sources	Examples of evidence	Quality as evidence
Generated directly by the auditors	Direct inspection and observation, records of interviews or focus group discussion, questionnaire, analysis of survey responses, analysis, computation, analytical review of financial statements, individual accounts, expenditure trends.	Highest
Provided by third parties external to the entity	Third-party confirmations (e.g. from banks); work of other auditors such as the Supreme Audit Institution or the certifying bodies of the member states; reports of auditor's experts; national statistical data.	Higher
Provided by the auditee	Data from databases, documents, accounting and budget information, activity statements, management representations (Annual activity reports and statements by the Directorates-General), impact assessments and evaluations, internal audit reports.	Lower, due to potential bias

Types of evidence

Audit evidence may be physical, documentary, oral or analytical.

Types of evidence	Examples of evidence
Physical	Notes, photographs, drawings, samples, or audiovisual material obtained from direct inspection or observation of people, property or events.
Documentary	Documents, accounting records, management representations and reports, policies, manuals and procedures, system descriptions, letters, contracts, literature, the internet, postal or web-based survey.
Oral	Summary of information obtained through enquiry or interviews of auditee staff or third parties; also through focus groups, expert panels in performance audits or reviews.
Analytical	Such evidence is obtained by using professional judgement to evaluate physical, documentary and oral evidence through reasoning, reclassification, computation and comparison, including ratio analysis, regression analysis and benchmarking.

Corroboration

Different sources should be employed when collecting evidence to make it more persuasive. Audit evidence provides a higher degree of confidence when items of evidence from different sources or of a different nature are consistent with one another. This is known as corroboration or triangulation. In addition, obtaining audit evidence from different sources or of a different nature may indicate that an individual item of audit evidence is not reliable. Conversely, when audit evidence obtained from one source is inconsistent with that obtained from another, the audit team should determine what additional audit procedures are necessary to resolve the inconsistency and thus allow the information to be used as audit evidence.

Relevancy

For evidence to be relevant, it should help to answer the audit . Relevance also bears upon the audit criteria, audit finding and the purpose of the audit procedure. The more an audit objective is judgement-based (like in performance audits), the more likely the audit evidence available is to be persuasive ("points towards the conclusion that...") than conclusive ("right/wrong") in nature. Relevance also requires the evidence to apply to the period under review. If the audit objective so requires, the total evidence must be representative of the entire period being audited.

Instructions

Audit considerations

There are no precise guidelines to measure the degree of proof required. When evaluating audit evidence for sufficiency, reliability and relevancy, the auditor uses professional judgement and exercises professional scepticism. These qualities are interrelated and must be considered together with the objective and context of the audit and nature of the audit finding:

High-quality evidence can lead to a reduction in the need for a large quantity of evidence; a large quantity of evidence can sometimes, but not always, be persuasive, even though individual pieces of evidence are not of high quality. However, merely obtaining more evidence does not compensate for its poor quality.
The higher the combined level of inherent and control risks, the more persuasive evidence the audit team needs to obtain directly, e.g. through tests of details in financial and compliance audits. Similarly, the greater risk of making incorrect findings, reaching invalid conclusions, legal action, controversy or surprise from reporting an audit finding, the higher the standard of evidence needed.
While the audit team can obtain some audit evidence by testing the database records (e.g. by computation or analysis), this alone is not persuasive enough as evidence on which to base an audit conclusion about the characteristics of the underlying transactions, and other procedures should also be used, e.g. inspection, observation, enquiry and confirmation.
The higher the level of materiality in monetary terms or the significance of the audit finding, the higher the standard of evidence required.
The auditor should balance the persuasiveness of evidence against the cost of obtaining it. At some point, the cost of obtaining more evidence will outweigh the improved persuasiveness of the total body of evidence.
The auditor should consider the purpose for which the evidence will be used. A higher standard is required for evidence supporting
audit findings
than for background information provided in the audit report.
In performance audits, important facts are often not of an individual nature, but rather comprise several interrelated facts. The strength of the combined facts may be as important, or even more so, than the strength of the individual facts.
Useful information may not always be documented, thus also necessitating the use of other approaches than documentary review.
Whilst the physical evidence is usually the most persuasive, the auditors must be aware that their presence may distort what would normally occur, thus reducing the quality of the evidence.
Oral evidence maybe important, as information obtained in this manner is up-to-date and may not be available elsewhere. However, information should be corroborated and statements confirmed if they are being used as evidence. Only on the rarest of occasions will the auditor accept information obtained in interviews to be reliable in its own right.

Detailed assessments of information needs should be carried out at both the audit planning and examination phases so that the auditors are not swamped by excessive data. Evidence is obtained at the audit examination phase by carrying out a mixture of to collect and analyse data. The audit team needs to make a judgement as to which method of obtaining persuasive evidence will be suitable for the particular audit objective. They need to consider also the extent of their skills in designing and applying the methods, as their skills will determine the quality of the evidence.

Access and procedures

The ECA has right of access to "any document or information necessary to carry out its task" (Art 287(3) TFEU). It is a matter for the ECA to determine what documents or information it deems necessary in this regard within the boundaries set by the TFEU. The ECA is also fully committed to ensuring that confidential documents received from auditees are processed appropriately and are not disclosed to any unauthorised parties. If an audit involves processing of classified or sensitive documents or other data, the team should contact the information security officer. If personal data will be processed, the team should contact the data protection officer. Information and documentation relating to cases of discovered or suspected fraud should be handled with particular care. The audit evidence should be adequately documented.

Audit evidence // <![CDATA[ _spBodyOnLoadFunctionNames.push("setupPageDescriptionCallout"); // ]]>

Audit evidence

Principle

Definitions

Sufficiency

Reliability

Sources of evidence

Types of evidence

Corroboration

Relevancy

Instructions

Audit considerations

Access and procedures

Audit evidence