AWP 3

​In real-life auditing, audit evidence is information collected by auditors to draw conclusions on the fairness and accuracy of the financial statements of an entity. This evidence is crucial for supporting the auditor’s opinion on whether the financial statements are free of material misstatement, whether due to fraud or error. Here are some common types of audit evidence that auditors collect in real-life scenarios:

1. Documentation: This can include invoices, contracts, ledgers, and bank statements. Auditors review these documents to verify transactions and balances.

2. Physical Examination: Auditors may physically inspect assets such as inventory or equipment to verify their existence and condition.

3. Confirmations: This involves obtaining written or oral confirmations from third parties. For example, auditors might confirm account balances with banks or customers.

4. Observation: Auditors may observe processes, such as the counting of inventory, to gather evidence on the way procedures are carried out.

5. Analytical Procedures: This includes analyzing financial data to identify inconsistencies, unexpected changes, or other indicators of potential misstatement. For instance, comparing current year’s financial ratios with those of previous years or industry averages.

6. Inquiries: Auditors ask questions of management and others within the entity to gain understanding and information about financial statement items and internal controls.

7. Reperformance: Auditors may reperform certain procedures or controls to verify their effectiveness. For example, recalculating depreciation expense.

8. Computer-Assisted Audit Techniques (CAATs): Using software to analyze large datasets for anomalies, trends, or discrepancies. This can include data mining and testing of transactional data.

These examples illustrate how audit evidence is a cornerstone of the audit process, providing the basis for auditors to form their judgments and opinions on the financial statements they audit.