he foundation of any audit is the evidence gathered and evaluated by the auditor. The auditor must have the knowledge and skill to accumulate sufficient competent evi
dence on every audit to meet the standards of the profession. As described in the opening vignette, Ralph Smalley learned the effect of not accumulating the appropriate evidence after being sued over his audit of Crenshaw Properties. This chapter deals with the types of evidence decisions auditors make, the evidence available to auditors, and the use of that evidence in performing audits. 
NATURE OF EVIDENCE 
OBJECTIVE 7-1 
Conlrast audil evidence with evi" dance used by other professions. 
Evidence was defined in Chapter 1 as any information used by the auditor to determine whether the information being audited is stated in accordance with the established criteria. The information varies greatly in the extent to which it persuades the auditor whether financial statements are stated in accordance with generally accepted accounting principles. Evidence includes information that is highly persuasive, such as the auditor's count of marketable securities, and less persuasive information, such as responses to questions of client employees. 
The use of evidence is not unique to auditors. Evidence is also used extensively by scientists, lawyers, and historians. 
Through television, most people are familiar with the use of evidence in legal cases dealing with the guilt or innocence of a party charged with a crime such as robbery. In legal cases, there are well-defined rules of evidence enforced by a judge for the protection of the innocent. It is common, for example, for legal evidence to be judged inadmissible on the grounds that it is irrelevant, prejudicial, or based on hearsay. 
Similarly, in scientific experiments, the scientist obtains evidence to draw conclusions about a theory. Assume, for example, that a medical scientist is evaluating a new medicine that may provide relief for asthma sufferers. The scientist will gather evidence from a large number of controlled experiments over an extended period to determine the effectiveness of the medicine. 
The auditor also gathers evidence to draw conclusions. Different evidence is used by auditors than by scientists and in cases of law, and it is used in different ways, but in all 
Characteristics of Evidence for a Scientific Experiment, Legal Case, and Audit of Financial Statements 
Use of the evidence 
Nature of evidence used 
Party or parties evaluating evidence 
Certainty of conclusions from evidence 
Nature of conclusions 
Typical consequences of incorrect conclusions from evidence 
Determine effects of using the medicine 
Decide guilt or innocence of accused 
Determine whether statements are fairly presented 
Results of repeated experiments 
Direct evidence and testimony by witnesses and parties involved 
Various types of audit evidence generated by the auditor, third parties, and the client 
Scientist 
Jury and judge 
Auditor 
Vary from uncertain to near certainty 
Requires guilt beyond a reasonable doubt 
High level of assurance 
Recommend or not recommend use of medicine 
Innocence or guilt of party 
Issue one of several alternative types of audit reports 
Society uses ineffective or harmful medicine 
Guiity party is not penalized or innocent party is found guilty 
Statement users make incorrect decisions and auditor may be sued 
PART TWO / THE AUDIT PROCESS 
Auditing and Assurance Services: An Integrated Approach. Eleventh Edition by Alvin A. Arens, Randal J. Elder, and Mark S. Beasley. Published by Prentice Hall. Copyright © 2006 by Pearson Education, Inc. 
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