In both a legal case and in an audit of financial statements, evidence is
used by an unbiased person to draw conclusions. In addition, the consequences
of an incorrect decision in both situations can be equally undesirable. For
example, if a guilty person is set free, society may be in danger if the person
repeats his or her illegal act. Similarly, if investors rely on materially misstated
financial statements, they could lose significant amounts of money. Finally, the
guilt of a defendant in a legal case must be proven beyond a reasonable doubt.
This is similar to the concept of sufficient appropriate evidence in an audit
situation. As with a judge or jury, an auditor cannot be completely convinced that
his or her opinion is correct, but rather must obtain a high level of assurance.
The nature of evidence in a legal case and in an audit of financial
statements differs because a legal case relies heavily on testimony by witnesses
and other parties involved. While inquiry is a form of evidence used by auditors,
other more reliable types of evidence such as confirmation with third parties,
physical examination, and documentation are also used extensively. A legal case
also differs from an audit because of the nature of the conclusions made. In a
legal case, a judge or jury decides the guilt or innocence of the defendant. In an
audit, the auditor issues one of several audit opinions after evaluating the evidence.
The four major audit evidence decisions that must be made on every audit
1. Which audit procedures to use.
2. What sample size to select for a given procedure.
3. Which items to select from the population.
4. When to perform the procedure.
An audit procedure is the detailed instruction for the collection of a type of
audit evidence that is to be obtained. Because audit procedures are the instructions
to be followed in accumulating evidence, they must be worded carefully to make
sure the instructions are clear.
An audit program for accounts receivable is a list of audit procedures that
will be used to audit accounts receivable for a given client. The audit procedures,
sample size, items to select, and timing should be included in the audit program.