Audit evidence is all the information used by the auditor. Auditor’s opinion is based the information contained in the accounting records underlying the financial statements and other information. Management is responsible for the preparation of the financial statements based on the accounting records of the entity. The auditor should obtain audit evidence by testing the accounting records. However, because accounting records alone do not provide sufficient appropriate audit evidence on which to base an audit opinion on the financial statements, the auditor should obtain other audit evidence.
Other information that the auditor may use as audit evidence includes minutes of meetings; confirmations from third parties; industry analysts' reports; comparable data about competitors (benchmarking); controls manuals; information obtained by the auditor from such audit procedures as inquiry, observation, and inspection; and other information developed by or available to the auditor that permits the auditor to reach conclusions through valid reasoning.
The performance principle requires auditors to gather sufficient appropriate evidence to be considered appropriate, evidence must be relevant and reliable (auditing & assurance services 4th).
Relevance refers to the nature of information provided by the audit evidence. For example, when auditors confirm accounts receivable with customers, this providence evidence that the account is legitimate, but does not provide evidence that he account will ultimately be collectible (auditing & assurance services 4th).
Reliability refers to the extent of trust that auditors can place in evidence; evidence that is reliable can be thought of as being of high quality (auditing & assurance services 4th). Professional standards note that evidence is more reliable when: 1) it is obtained directly by auditors,2) it is obtained from sources