Audit Evidence under AAS - 5

As per AAS - 5, audit evidence means the collection of important information for checking of accounting reports. You know, this world is working on the basis of proofs. For example, accountant has recorded a specific transaction. What is the proof that this transaction is true? Accountant will show the bill of this transaction. For example, this is the transaction of purchases. Now, question will the arise, what is the proof that this bill is true? Stamp and Sign of  vendor on the bill is the proof that bill is original.

From above discussion, truth has to prove with the help of proofs and evidences. Whole accounting records are maintained on the basis of accounting evidences. Whole court decisions are done on the basis of advocates' evidences. Whole police department work on the basis of evidences. So, auditing is not any exception of this. Whole auditing work is done on the basis of audit evidence. When an auditor gives his opinion, he has to give his opinion on the basis of audit evidence. So, it is the first duty to collect audit evidence for giving his true opinion.

Following are the Main Ways for Collecting Audit Evidences:-

1. Inspection 

Inspection is the main method of audit evidence. If any auditor says that accounting reports are not showing true and fair views, then interested parities will demand its proofs. At that time, he will explain that he did inspection and lots of transactions which are recorded in the accounting records are without sources. We also examined the records and found unreliable. So, auditor should come physically to the office of company and check accounts one by one and write it in inspection notes which will become his audit proof. He should also check the assets physically.

2. Observation 

In the observation way of collecting audit evidence, auditor will observe the process of accounting records which are done by others. For example, there are large quantities of stock in the store which were counted by store keeper. Auditor can take sample and ask the quantity. Now, store keeper will count it. Auditor will observe whether he is counting correctly or not. On this basis, he will make his observation report and it will be his audit evidence for telling counting process is wrong or correct.

3. Inquiries and Confirmation 

Inquiries are the set of questions which are asked by auditor from inside personnel and outside persons for knowing useful information regarding accounting records of company. This inquiries may be written or oral. If it is oral, auditor will write the responses of his inquiries when he will free in same day. Confirmation is also response of auditor's query. For example, when I say to you to deposit the money in my bank account and confirm me if you will pay any other day. It means, there are two duty of other person. One is deposit and other to confirm me of his action. Like this, in all accounting record, auditor can get written or oral confirmation. For example N creditor are showing Rs. 1,00,000 in the ABC company. Now, auditor asks confirmation from N creditor. Whether he sold the goods of Rs. 1,00,000 on credit to ABC or not. If N creditor confirms that he sold that this statement will be confirmation statement and this will become audit evidence. N creditor may confirm that he did not sell the goods of Rs. 1,00,000 to ABC but he sold only of Rs. 10,000 on credit to ABC. At that time, auditor's opinion on the accounting record will become different on the basis of this confirmation statement evidence.

4. Computation

Computation is the calculation of figures which are showing in the accounting records. Auditor can fix the duty of his assistant to calculate the total of bills and ledger balances and then he see whether there is difference or not in his calculation. This audit evidence will be helpful for knowing arithmetical accuracy in the books of accounts.

5. Analytical Reviews 

In analytically reviews, auditor calculates different accounting ratios and analyse the past financial statements for checking the variations in the figures of financial statements.

Following Audit Evidence is Must :-

1. Existence of Asset 

Whether an asset is exist in the company or not. Evidence can get after physical checking only.

2. Right and Obligations on the Assets and Liabilities 

Whether asset is of company or not. Its proof shows its original buying bill. Whether an liability is the obligation of company or not. Its proof will be the loan agreement document.

3. Correct Valuation 

Whether valuation is correct or not, for confirming this, just go to market and know the correct value of specific asset of company.

4. Correct Measurement 

Whether quantity is measure correctly or not depends on the person who is responsible for this. Through above observation way, you can check whether person is measuring correct or not.

5. Correct Presentation and Disclosure 

To check whether all financial statements are presented and disclosure on the basis of statutory requirement or not.

Related : AAS 4


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Accounting Education: Audit Evidence under AAS - 5
Audit Evidence under AAS - 5
Accounting Education
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