12.2 Types and features of audit evidence (sufficiency, reliability and relevance)

Audit evidence refers to the information obtained by auditors during an audit to support their conclusions and opinions. There are various types of audit evidence that auditors may gather, including:

1. Documentary Evidence:
   • Physical documents: This includes invoices, contracts, bank statements, purchase orders, shipping documents, and other written records.
   • Electronic documents: This includes electronic files, emails, database records, and other digital records.
2. External Confirmations:
   • Written responses from third parties: Auditors may send confirmation requests to banks, customers, suppliers, lenders, or other relevant third parties to verify the accuracy of certain information.
3. Internal Records and Documents:
   • Accounting records: This includes general ledger, subsidiary ledgers, journals, and other accounting books and records maintained by the entity.
   • Internal control documentation: This includes policies, procedures, manuals, and other documents related to the entity’s internal control system.
4. Observations:
   • Physical observations: Auditors may observe physical inventory counts, production processes, control activities, or other relevant operations.
   • Process walkthroughs: Auditors may walk through specific processes to understand and assess the internal controls in place.
5. Inquiries and Interviews:
   • Discussions with management: Auditors may interview management or other personnel within the organization to gain an understanding of processes, transactions, and controls.
   • External expert opinions: Auditors may seek opinions or advice from external experts, such as legal counsel or valuation specialists.
6. Analytical Procedures:
   • Trend analysis: Auditors may analyze financial data over multiple periods to identify significant fluctuations, trends, or anomalies.
   • Ratio analysis: Auditors may calculate and compare financial ratios to assess the reasonableness and consistency of financial information.
   • Benchmarking: Auditors may compare the entity’s financial performance or key indicators to industry averages or similar companies.
7. Physical Inspection:
   • Physical examination of assets: Auditors may physically inspect inventory, fixed assets, cash, or other tangible assets to verify their existence and condition.
8. Reperformance:
   • Independent execution of controls: Auditors may perform procedures or control activities that were originally performed by the entity to assess their effectiveness and accuracy.
   • Recalculation: Auditors may independently recalculate financial calculations, such as interest expense, depreciation, or inventory valuation, to verify their accuracy.