Chapter 7, Problem 1RQ

To determine

Explain the difference and similarities between evidence in a legal case and evidence in an audit of financial statements.

Explanation of Solution

Audit Evidence: The piece of evidence provided by the audit team to prove their opinion with respect to the audit are known as audit evidences. It includes accounting information related to the evidence and their source.

Evidence in legal case and in an audit of financial statements is used by balanced person to conclude. The incorrect decision in both circumstances are not welcomed. Likewise investors could lose significant amount of money, if investors rely on materially misstated financial statements. On the whole the guilt of a defendant in a legal case has to been proven in a way that should be beyond a reasonable doubt. This is related to the concept of adequate evidence in audit situation. An auditor cannot be completely convinced that judge or jury’s opinion is correct but it should attains high level of assurance.

The difference is that legal case depends on witness and other parties involved. Inquiry is an evidence used by auditor and other evidence like confirmation with third parties, physical examination and inspection are also used extensively. Because of the nature of the conclusion made, a legal case also differs from an audit. In legal case a judge or jury decides the guilt or innocence of the defendant but in audit, after evaluating the evidence the auditor issues one of several audit opinions.