Auditors objective or in simple words responsibility with respect to audit engagement is only to the extent of expression his opinion on financial statements whether they have been prepared in accordance with applicable financial reporting framework and giving true and fair view of entity’s business.
Although expression of opinion might look like not much of a task but actually it is a matter of great responsibility as large number of users of general purpose financial statements are going to rely on financial statements because of auditor’s opinion and if the opinion is not correct then users are at risk and this may result in serious consequences for the auditor and his profession.
Therefore, auditor has to base his opinion on such conclusions which are backed by relevant facts, figures and all the necessary information, in short evidence, which points to the same opinion.
International Standard on Auditing (ISAs) 500 – Audit Evidence defines the term audit evidence as follows:
Information used by the auditor in arriving at the conclusions on which the auditor’s opinion is based. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information.
In simple words all such information that is used by auditor to form conclusions is audit evidence and this includes:
- Accounting records
- Other information; such as:
- Information from previous audit
- Relevant information from similar audits
- Information collected from an expert
- Absence of information – yes even absence of information can be counted as audit evidence.
Another very important thing associated with audit evidence is that auditor cannot count any evidence as audit evidence to reach conclusions instead, ISA 500 directs auditor to obtain sufficient appropriate audit evidence which actually helps auditor in reducing the audit risk to an acceptably low level as only sufficient appropriate audit evidence can provide reasonable assurance.
Sufficiency is a measure of quantity of audit evidence whereas, appropriateness is a measure of quality of audit evidence. In short, sufficient appropriate audit evidence means that auditor is required to collect such audit evidence which is not only enough but also relevant and reliable.
But who is going to decide whether sufficient appropriate audit evidence has been obtained? This matter is left on auditor’s professional judgment .