What is the difference between Audit evidence and Audit procedure?

Auditor’s responsibility is to express opinion on the assertions expressed by the management in the financial statements. However, to be reasonably sure that his opinion is appropriate, auditor is required to obtain sufficient appropriate audit evidence. Primarily such evidence is obtained by the auditor through relevant audit procedures performed by the auditor during engagement.

Audit procedures are any activities performed by the auditor to obtain audit evidence. Audit procedures are of following types:

• Inspection
• Observation
• Reperformance
• Recalculation
• External Confirmation
• Recalculation
• Analytical procedure
• Inquiry

However, each of the above procedures are applied by the auditor to achieve particular purpose at different phases of audit. For example in the beginning he needs to obtain understanding of the entity to assess risk. Once the understanding is obtained and risk is assessed, auditor than design further audit procedures that are responsive to risk assessed. Therefore, the above different types of audit procedures are applied by the auditor to achieve different purpose. On the basis of their nature or purpose we can classify audit procedures in following categories:

• Risk assessment procedures
• Further audit procedures
  • Tests of controls
  • Substantive procedures
    • Tests of details
    • Substantive analytical procedures

Its not surprising that sometimes one type of procedure can help auditor assess the risk and also work as further audit procedure. For example inquiry at the planning stage helps auditor understand the internal controls of the entity and inquiry used as further audit procedure can help auditor test the controls.

Through application of audit procedures of different types for different purposes auditor collects sufficient appropriate audit evidence which helps auditor reach conclusions and ultimately such conclusions sum up in the form of audit opinion expressed in auditor’s report.

Although majority of audit evidence is extracted through application of audit procedure on entity’s accounting information system or from other sources that can provide relevant information. But sometime audit procedures are applied to confirm or reject already available information. Sometimes information given by management or third party e.g. expert, bank is considered as audit evidence by the auditor provided auditor is satisfied with the information to be taken as evidence. And in some cases even absence of information is considered as audit evidence.

Audit evidence need not to be from the same period in which entity is being audited for example any evidence that was obtained in previous audit and is still relevant can be taken as evidence. Audit evidence might be served from sources other than entity such as banks, suppliers and customers of entity, experts hired by client or auditor and firm’s quality control guidelines of whom auditor is a member.

Mostly audit evidence is in documented form either hard copy or soft copy but it need not to be in documented form and even verbal communication and inquiries can serve as audit evidence. But definitely reliability of such evidence other than documented is not high and due to same reason auditor documents the evidence obtained and also ask management to make certain information available in documented form (management representations as an example) so that it can be held as evidence in audit file.

Following examples might help you better understand difference between audit procedure and audit evidence:

1. Recalculation of certain accounts in purchases ledger to confirm accuracy.
   Recalculation is the procedure applied to obtain evidence of accuracy
2. Inquire management whether bad debts are written-off after approval of senior authority
   Inquiry is the procedure applied to obtain evidence that control exists over bad-debts write off
3. Inspect the purchase documents of asset to confirm entity owns the asset
   Inspection is the procedure applied to obtain evidence that entity rightfully owns the asset
4. Inquiry of lawyer to learn about the recent developments on case laws and their status
   Inquiry is the procedure applied to obtain evidence whether appropriate disclosures or provisions are made in the financial statements
5. Management refuse to give written representation that it is responsible for preparing financial statements on request of auditor
   Absence of management’s representation is an audit evidence in itself that management is not cooperating and might be hiding material information