To provide a basis for planning the audit. The auditor may use
reference information from the previous year in order to plan this year's
audit, such as the evaluation of internal control, the time budget, etc.
To provide a record of the evidence accumulated and the results of
the tests. This is the primary means of documenting that an
adequate audit was performed.
To provide data for deciding the proper type of audit report. Data are
used in determining the scope of the audit and the fairness with which
the financial statements are stated.
To provide a basis for review by supervisors and partners. These
individuals use the audit documentation to evaluate whether sufficient
appropriate evidence was accumulated to justify the audit report.
Audit documentation is used for several purposes, both during the audit
and after the audit is completed. One of the uses is the review by more
experienced personnel. A second is for planning the subsequent year audit. A
third is to demonstrate that the auditor has accumulated sufficient appropriate
evidence if there is a need to defend the audit at a later date. For these uses, it is
important that the audit documentation provide sufficient information so that the
person reviewing an audit schedule knows the name of the client, contents of the
audit schedule, period covered, who prepared the audit schedule, when it was
prepared, and how it ties into the rest of the audit files with an index code.
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 inspection 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.