Demystifying,the,Auditor,Gathe business, insurance Demystifying the Auditors Gathering of Evidence: Part Two
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Competence relates to the quality of evidence obtained, and is evaluated in terms of relevance and validity. The relevance of evidence should address and meet the audit objective being tested. Let us illustrate the audit of inventory to expound on this characteristic. The auditor should not only satisfy himself with the reconciliation of inventory amounts with the books of accounts with supporting documents such as purchase orders or delivery receipts. To test if the inventory is properly accounted, the auditor would first review the inventory-taking procedures then observe the actual counting to get first-hand evidence that the procedures are properly observed. Once satisfied, he could place a higher degree of reliance on the assertion that inventory is complete and properly valued. The validity of evidence is dictated by the circumstances in which it is obtained amidst all the risks and factors that could influence such, and is more erratic in nature. The following general principles serve the auditor useful guides in ensuring the validity of the evidence gathered: 1. Evidence obtained from independent sources outside the client provides greater reliability than that secured solely within the company. This is so due to the fact that the client has no hand in the processing of these evidences. As such, bank statements are more reliable than the balances appearing in the cashbooks as much as billing statements from customers/clients are more reliable than vouchers or purchase orders. 2. Accounting records and other internally generated documents are more reliable if they are a product of an effective internal control. If the processing of cash receipts transactions employs the proper segregation of receipt and recording duties, the possibility of collusion or any form of irregularity will be minimized as there is an automatic check-and-balance control. The process will have to go through numerous personnel, which will ensure the correctness of the transaction. 3. Direct acquiring of evidence by the auditor himself is more persuasive than information obtained indirectly. This is the main reason why auditor uses the audit technique of confirmation in auditing receivables and loans where they sent a letter to the debtor or creditor to verify the amounts reflecting in the financial statements. In addition to these generalizations, the competence of evidential matter is increased when the auditors are able to obtain additional information to support the original evidence. In testing the ownership of land declared in the financial statements, the auditors would naturally inspect its title. If they could secure a certification from the local governments Assessors Office or Registry of Deeds that the said land was under the name of the client, the evidence gathered is more persuasive, perhaps convincing, rather than basing the evaluation on the title alone.
Demystifying,the,Auditor,Gathe