Audit Evidence: 13 Essential Procedures & How to Use Them Effectively
Overview: Gathering sufficient, appropriate audit evidence is critical to forming a proper audit opinion. Auditors use a variety of standard procedures throughout the engagement — from risk assessment to substantive testing and final review. Here’s how each works in practice.
✅ Standard Audit Procedures
- Confirmation: Obtain representations from independent third parties (e.g., bank or AR confirmations).
- Footing, Cross-Footing, and Recalculation: Verify mathematical accuracy by recalculating amounts manually or using audit software.
- Inquiry: Ask questions of knowledgeable parties inside and outside the entity (attorneys, management, bankers).
- Vouching: Directional test backwards: From FS entries to source documents (existence assertion).
- Tracing: Directional test forwards: From source documents to FS entries (completeness assertion).
- Examination/Inspection: Review records, documents, or physical assets to verify existence or conditions.
- Observation: Watch processes (e.g., inventory counts, control procedures) in action.
- Analytical Procedures: Compare relationships among data to identify unusual fluctuations (required at planning & final review).
- Reperformance: Independently perform procedures originally done by the client’s staff.
- Reconciliation: Compare balances from two independent sources (e.g., bank recs, inventory counts).
- Cutoff Review: Test transactions around year-end for proper period recognition.
- Walk-Through: Combine inquiry, observation, and inspection to follow a transaction from start to finish.
- Representation Letter: Obtain written confirmation from management at the end of fieldwork.
📌 Directional Testing: Existence vs. Completeness
• Vouching → backward → existence/occurrence
• Tracing → forward → completeness
Remember: Assets & revenues often overstated → test existence. Liabilities & expenses often understated → test completeness.
✅ Analytical Procedures: When and Why
Required during planning (to understand entity & assess risk) and final review (to ensure overall reasonableness). May be used as a substantive test if suitable and data is reliable. Always corroborate unusual results.
✅ Related Assertions: COVERUP
- Completeness: Tracing, analytical review, observation
- Valuation: Recalculation, inspection
- Existence: Vouching, confirmation, inspection
- Rights & Obligations: Inspection of contracts
- Understandability & Presentation: Review disclosures, management inquiry
🔗 Helpful References
👉 Know your audit evidence inside and out — and test smarter every time!
