Audit Evidence Brochure
Download a pdf of the Audit
Evidence Brochure
The Victorian Auditor-General’s Office
(VAGO) conducts financial and performance audits in accordance with
Australian Auditing Standards, as required by section 13 of the
Audit Act 1994 (the Act). These standards require auditors
to design and perform procedures to obtain sufficient and
appropriate audit evidence.
This evidence is then used to draw
conclusions to form the basis of the auditor’s opinion for
financial statement audits and for reports to Parliament.
Financial and Performance audits
The gathering of evidence is vital to
all audits conducted by VAGO. VAGO audits the financial statements
of all public sector entities and the Auditor-General must express
a written opinion on those statements. In addition performance
audits are undertaken to assess whether entities and their program
objectives are managed effectively, economically, efficiently and
in compliance with relevant Acts.
What is audit evidence?
For financial audits, audit evidence
includes information from accounting records used to prepare the
report and other relevant information. Accounting records generally
include data from accounting entries and supporting documents.
These include cheques and details of electronic fund transfers,
invoices, contracts, general and subsidiary ledgers, and journal
entries. Work sheets and spreadsheets supporting cost allocations,
computations, reconciliations and disclosures are also
examples.
For performance audits, audit evidence
gathered is usually broader than that obtained for the audit of a
financial report. Some examples include strategic plans, tender
documents, business cases, Cabinet submissions, consultant’s
reports, legal opinions and contracts with private providers. These
documents can be accessed even if they are in draft form or subject
to privacy restrictions.
However, persuasive audit evidence
must have the same characteristics whether it is obtained as part
of a financial or performance audit. That is, the evidence must be
sufficient and appropriate. Audit evidence is cumulative and is
also gathered to corroborate management representations.
What is sufficient and appropriate
audit evidence?
Sufficiency is a
measure of the quantity of audit evidence. In assessing
sufficiency, the Auditor-General and his staff consider whether
enough evidence has been obtained to draw a reasonable
conclusion.
Appropriateness is a
measure of the quality of evidence. The quality of all audit
evidence is affected by the relevance and reliability of the
information it is based on.
The reliability of information is
influenced by its source, nature and how it is obtained. For
example, a bank statement obtained directly from the bank is more
reliable than a bank statement provided by the entity being
audited, and an original bank statement is more reliable than a
photocopy of a bank statement.
The following diagram depicts the
characteristics of audit evidence needed to support the conclusions
made.
What audit procedures are used to
obtain audit evidence?
A combination of audit procedures are
used to obtain audit evidence during the conduct of both financial
and performance audits. These include:
- enquiry—seeking
information from knowledgeable people within and outside the
entity, ranging from formal written enquiries to informal
discussions
- inspection—examining
records or documents in paper or electronic form
observation—looking at a process or procedure being performed by
others
- external
confirmation—obtaining a written confirmation directly
from a third party, such as a bank or debtor
- recalculation—checking
the mathematical accuracy of documents or records
- re-performance—independently
re-performing procedures or controls that were originally performed
as part of the entity’s internal control
- analytical
procedures—evaluating financial information made by a
study of plausible relationships among both financial and
non-financial data.
While enquiry may provide important audit evidence, enquiry
alone usually does not provide sufficient audit evidence upon which
to form a conclusion. Auditors are required to corroborate evidence
obtained via enquiry through other means, such as inspecting
relevant documents or confirming the information with an
independent third party (e.g. a bank).
What powers does the Auditor-General
have to obtain audit evidence?
The Auditor-General has broad powers
under the Act to access information necessary to perform the duties
under that Act.
For example, under section 12, the
Auditor-General or an authorised representative can access
information that is otherwise subject to secrecy or other
disclosure restrictions, such as Cabinet documents. Also, if there
is lack of cooperation by someone representing an entity subject to
audit, under section 11 of the Act, the
Auditor-General can compel individuals to provide information and
to perform a search for any documents in the possession, custody or
control of any authority.
Confidentiality
The Auditor-General, his staff and
contractors are required to maintain the confidentiality of any
information gathered in an audit.
However, such information may be
disclosed in an Auditor-General’s report, under section 16 of the
Act, if the information is relevant to the subject matter of the
report and its inclusion in the report is in the public
interest.
Balanced reporting and natural
justice
Management and those charged with
governance of entities subject to audit are afforded natural
justice and procedural fairness during the course of the audit.
This primarily occurs through the issue of management letters for
financial audits and issues papers for performance audits. In the
case of a report to Parliament, a copy of the proposed report is
provided to the entity before it is tabled and written comments
received are included in the final report to Parliament under
section 16 of the Act.