The auditor could obtain audit evidence from many different sources, such as their own testing or external independent sources. The result from their own testing includes their reviewing the client’s internal control over financial reporting during the planning stage.
Or through performing audit procedures such as inquiry, observation, inspection, recalculation, re-performance, and confirmation as we as an analytical review. Other sources that auditors could obtain audit evidence are the evidence generated or represented by management.
And one more source that is generally considered more reliable than the source that we obtain directly from management is confirmation from external parties.
For example, bank confirmation, receivable confirmation, and payable confirmation. This evidence is powerful when directly obtained from the banks, customers, and suppliers.
The Source of audit evidence is said in the ISA 500, and here is what the standard said:
Some audit evidence is obtained by performing audit procedures to test the accounting records, such as analysis and review, reperforming procedures followed in the financial reporting process, and reconciling related types and applications of the same information.
By performing such audit procedures, the auditor may determine that the accounting records are internally consistent and agree to the financial statements.
More assurance is ordinarily obtained from consistent audit evidence obtained from different sources or of a different nature than from items of audit evidence considered individually. For example, corroborating information obtained from a source independent of the entity may increase the auditor’s assurance from internal audit evidence, such as evidence existing within the accounting records, minutes of meetings, or management representation. Information from sources independent of the entity that the auditor may use as audit evidence may include confirmations from third parties, analysts’ reports, and comparable data about competitors (benchmarking data).
Audit evidence is significant for auditors informing and supporting the audit opinion.
Before expressing an audit opinion, auditors need to ensure that the evidence they obtain is strong enough to support their opinion regardless of whether it is unqualified, qualified, adverse, or disclaimer.
Strong audit evidence means the evidence is sufficient and appropriate. Quality, quantity, and source of evidence are the key ingredients of strong audit evidence.