The Nature of the Audit Evidence

The nature of audit evidence refers to the form of the evidence you're looking at during the audit. It should include all accounting documents and may include other available information, such as the minutes of the board of directors meetings.

Accounting documents

Accounting documents come in two forms: books and records. Here are some examples of books:

  • General ledger: A file of all financial accounts, usually by account number, that shows all events that affected each account during the month.

  • Subsidiary ledger: A file that shows more detailed information than is shown on the general ledger. For example, the accounts receivable subsidiary ledger shows all customers who owe the business money and the amount each owes.

  • Journals: Day-by-day records of transactions. Examples of journals are the cash receipts, cash disbursement, and general journals:

    • All transactions involving cash coming into the business go in the cash receipts journal. This includes cash sales, interest, dividend income, and money the company receives if it sells an asset.

    • Cash disbursement journals show all money paid out in the form of cash, checks or automated debit for accounts payable, merchandise purchases, and operating expenses.

    • The general journal is a catchall journal. Any transactions that don't logically belong anywhere else go here. This includes any accounting adjustments you give the business during the audit.

Here are some examples of records (also known as source documents):

  • Invoices from suppliers that show what the business ordered and how much it cost.

  • Z-tapes from cash registers that show daily sales in a retail shop. The Z-tape is the company's version of the cash register tape you receive with your purchase, but the company's Z-tape lists all sales made during the day.

  • Customer invoices that show what customers purchased from the company and how much it cost.

  • Time cards that show how many hours an employee worked during a pay period.

Non-accounting evidence

In addition to meeting minutes from the board of directors, other non-accounting evidence you look at during the audit includes confirmations from third parties, internal control manuals, and comparable industry standards. (An example of a confirmation from a third party would be sending a letter to a customer verifying the amount it owes your client at year-end.)

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