Documentary evidence

Definition

Documentary evidence refers to any type of written or recorded information that auditors use to support their findings and conclusions during an audit. This type of evidence is crucial because it helps provide a clear and objective basis for the auditor's assessments. It can come from various sources, including client records, contracts, invoices, and correspondence, and is vital in ensuring the reliability and credibility of the audit process.

5 Must Know Facts For Your Next Test

1. Documentary evidence can take many forms, including invoices, contracts, receipts, bank statements, and emails, making it versatile for various auditing needs.
2. The quality of documentary evidence is assessed based on its relevance, reliability, and completeness, which are essential factors in evaluating audit conclusions.
3. Auditors often use a combination of documentary evidence along with other types of evidence such as physical evidence or analytical procedures to form a comprehensive view of the financial situation.
4. Sufficient documentary evidence is necessary to reduce audit risk and provide reasonable assurance that financial statements are free from material misstatement.
5. Auditors may have to gather documentary evidence through direct inquiry with management or by inspecting physical documents to ensure they meet audit standards.

Review Questions

• How does documentary evidence contribute to the overall reliability of an audit?
  • Documentary evidence contributes significantly to the reliability of an audit by providing concrete support for the auditor's findings. It helps establish a clear audit trail that links transactions to their recorded amounts in financial statements. The strength of documentary evidence lies in its ability to be verified independently, which enhances the credibility of the auditor's conclusions regarding financial accuracy.
• Evaluate the role of different types of documentary evidence in substantive testing during an audit.
  • In substantive testing, various types of documentary evidence serve distinct purposes in verifying transactions. For instance, invoices can confirm sales revenue while bank statements can validate cash balances. The auditor evaluates each piece of evidence based on its relevance and reliability, as this directly impacts the effectiveness of the substantive tests performed. A robust set of documentary evidence enables auditors to detect potential misstatements effectively.
• Analyze how insufficient documentary evidence might affect the conclusions reached in an audit.
  • Insufficient documentary evidence can lead to significant implications for audit conclusions. If auditors cannot find adequate documentation to support financial transactions, they may have to question the validity of those transactions. This lack of reliable evidence increases audit risk and could result in a qualified opinion or a disclaimer on the financial statements, as it undermines the auditor's ability to provide reasonable assurance that the financial statements are free from material misstatement. Consequently, this situation emphasizes the importance of obtaining sufficient and appropriate documentary evidence throughout the audit process.

Related terms

Audit Trail:

A chronological record that traces the detailed history of transactions, helping auditors verify the accuracy of financial statements.

Substantive Testing:

Audit procedures designed to detect material misstatements in financial statements through the examination of documentary evidence and other data.

Internal Controls: Processes and procedures implemented by an organization to ensure the integrity of financial and accounting information, which can affect the quality of documentary evidence.