Every year, businesses in Malaysia go through audits to ensure their financial statements reflect a true and fair view of their performance. But behind every audit report lies a critical component that most business owners may overlook: audit evidence.
So, what exactly is audit evidence, and why is it so important? In this article, we’ll break it down for you in plain language—no jargon, just clarity.
What Is Audit Evidence?
Audit evidence refers to all the information auditors collect to support their opinion on a company’s financial statements. This can include:
- Invoices, receipts, and contracts
- Bank statements and confirmations
- Inventory records
- Payroll reports
- Emails or correspondence
- Physical observations (e.g. stock counts)
- Analytical reviews and recalculations
In short, audit evidence answers the question:
➡️ “Can we prove this number is correct?”
Why Is Audit Evidence So Important?
Here are 5 key reasons why audit evidence is the foundation of any reliable audit:
1. Supports the Audit Opinion
An auditor doesn’t form an opinion based on assumptions or trust—they need concrete evidence to back every assertion in the financial statements. Without evidence, the auditor’s opinion holds no credibility.
Example: If a company claims to have RM2 million in inventory, the auditor must physically verify this or review stock count reports and supplier invoices.
2. Ensures Accuracy and Completeness
Audit evidence helps verify whether:
- Revenue is recorded in the correct period
- Expenses are genuine and properly documented
- Assets actually exist and are owned by the company
- Liabilities have not been understated
Without this verification, companies could unintentionally (or intentionally) misstate their financial position.
3. Helps Detect Fraud or Errors
- Strong audit evidence can uncover inconsistencies or red flags, such as:
- Duplicate invoices
- Fictitious suppliers or customers
- Missing assets
- Unusual transactions
Many corporate fraud cases were uncovered because auditors followed the evidence trail instead of taking numbers at face value.
4. Improves Audit Quality and Objectivity
The more reliable and sufficient the audit evidence, the more confident an auditor can be in issuing a clean (unqualified) opinion. It also ensures objectivity, because the audit conclusion is based on facts, not assumptions.
5. Complies with Audit Standards
Audit standards such as ISA 500 (Audit Evidence) require auditors to obtain sufficient and appropriate evidence. Failing to do so can result in a substandard audit—which could have legal and professional consequences.
What Makes Good Audit Evidence?
Audit evidence must be both:
Sufficient: Enough quantity of evidence (e.g. sampling enough invoices)
Appropriate: High quality and relevance (e.g. external confirmations are more reliable than internal memos)
The best audit evidence is usually:
- Obtained directly by the auditor
- From independent third parties
- In written or original form