Audit evidence is evidentiary material collected during the course of a financial audit. Evidence collected during an audit can take a number of different forms, and there must be sufficient audit evidence for the auditor to make a final opinion. This evidence also has to be carefully controlled because it can potentially include confidential material and access to the evidence must be limited to people who authorized to examine it. Access is also limited to prevent tampering or interference with the evidence which could compromise the audit.
In an audit, financial records and practices are scrutinized. People can perform audits for a wide range of reasons. Internally, companies use auditing to make sure that all of their practices are legal. Auditing can also be performed externally for compliance reasons, to determine whether or not a company is reporting financial information accurately. If errors are uncovered during an audit they must be corrected and deliberate errors may be punishable by law.
People can break up audit evidence into two broad categories: internal and external. An example of internal audit evidence might be something like a checkbook register. External evidence includes things such as bank statements. Both types of evidence can be important for an audit; ideally, the evidence should agree, demonstrating that a company is following procedure and that its financial practices are fully legal.
Collection of evidence can include gathering documents, observing practices within a company, and conducting interviews with employees. There interviews may be conducted with people responsible for financial recordkeeping along with other members of the personnel. If a company is engaging in fraudulent or questionable activity, employees who are not directly involved in the activity may have noticed irregularities which could be important to auditors.
As auditors collect evidence, they record the evidence in the audit working papers and make sure that it is carefully documented. At the end of the audit, all of the evidence is reviewed and the auditor generates an opinion. Auditors must be able to back up their conclusions with evidence, demonstrating exactly where areas of concern lie and showing how they came to the opinion they did. For example, if an auditor states that a company knowingly committed tax fraud, she or he could point to interviews in the audit evidence in which people disclosed their awareness that certain practices were illegal, and can document with financial records that these practices were engaged in by company personnel.