The role of the auditor is that of an independent professional critic who investigates, analyses and evaluates the information underlying the statements as a means of reaching a conclusion as to their fairness. Before an auditor can express an opinion on financial statements, he must have sufficient Evidence that –
a) The items in the financial statements are supported by the balances in the ledger accounts;
b) The balances in the ledger accounts summarize correctly the numerous debit and credit entries;
c) The debit and credit entries in the accounts represent proper accounting interpretation of all the transactions entered into by the business.
In the audit of a company, this chain of evidence extends from documents describing individual transactions through the books of original entry to ledger accounts, and from ledger accounts to financial statements. The making of an audit may be thought of as the process of gathering and evaluating sufficient evidence to provide an adequate basis for expression of an opinion on financial statements.
The auditor makes tests of the accounting records for the purpose of gathering evidences. We need evidence that transactions have been properly analyzed and recorded, evidence of arithmetical accuracy in the records, and evidence that the work of summarizing the accounts and preparing the statements has been performed accurately in accordance with generally accepted accounting principles. Other auditing procedures are also carried out for the purpose of collecting evidences. We need evidence by physical inspection that the assets listed on the balance sheet actually exist and owned by the client, evidence that all liabilities owed by the client are included in the financial statements, and evidence from banks, customers, and other sources outside the business that will tend to substantiate the evidence gathered from the accounting records.
Types of Evidence
As a basis for his opinion the auditor gathers various types of evidences which are as under:
1) Internal control
2) Physical evidence
3) Documentary evidence
(a) Documentary evidence created outside the organization and transmitted to auditor;
(b) Documentary evidence created outside the organization and held by the client;
(c) Documentary evidence created within the organization;
4) Ledgers and Journals
5) Comparisons and Ratios
6) Computations
7) Oral evidence
.jpg)