Rules of Evidence

1
Rules of Evidence
The Institute of Internal Auditors Puget Sound
Chapter

• Comprehensive Entry Level Training for Auditors
• October 19-21, 2004
• Seattle, Washington

2
Rules of Evidence
Goals of this Learning Module

• Identify and define the four types of evidence.
• Identify and define the three standards evidence
  must meet.
• Differentiate between fact and inference in data
  collected as evidence.
• Review evidence and identify the types of
  evidence used to support the recommendation in
  the rental car case.

3
IIA Standard 2300 Conducting an Audit

• Internal auditors should
• Identify,
• Analyze,
• Evaluate, and
• Record
• sufficient information to achieve audit
  objectives.

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Definition of Evidence

• Evidence is the sufficient, competent and
  relevant information used to form a reasonable
  basis for the evaluators judgment and
  conclusions regarding the organizational program,
  activity or function being reviewed.

5
Purpose of Evidence

• Evidence provides the documentation necessary to
  support findings, conclusions and recommendations
  presented in audit reports.

6
Importance of Evidence

• Evidence provides a foundation of reality and
  objectivity for the work that auditors do.

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Categories of Evidence

• What are the different types of evidence?

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Categories of Evidence

1. Physical
2. Testimonial
3. Documentary
4. Analytical

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IIA Standard 2310 Identifying Information

• What should the standard of evidence be?

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Standards of Evidence 2310

• Internal auditors should identify
• Sufficient,
• Competent,
• Relevant, and
• Useful
• information that achieves the audit objectives.

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Sufficient

• Sufficient information is factual, adequate, and
  convincing so that a prudent, informed person
  would reach the same conclusions as the auditor.

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Is this evidence sufficient?

• Conclusion is 40 dollars has been stolen based
  on a Z tape showing 355.49 received, while cash
  drawer has 315.49.
• Conclusion is the manager is setting an unethical
  tone based on the testimony of three employees
  who report that the manager shows up an hour or
  more late to work most days of the week.
• Conclusion is the manager is arbitrary and
  capricious based on all 30 employees reporting
  that the manger allows 12 of the employees to eat
  at their desk and 18 may not. They all work in
  the same large room.

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Competent

• Competent information is reliable and the best
  attainable through the use of appropriate
  engagement techniques.
• Evident is competent if it is valid, reliable,
  and consistent with fact.
• In assessing competence, consider such factors as
  whether the evidence is accurate, authoritative,
  timely, and authentic.

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Which evidence is competent?

• Evidence obtained in a strong vs. weak internal
  control environment.
• Evidence obtained through direct physical
  examination, observation, computation, and
  inspection vs. indirect methods.
• Testimonial evidence obtained under conditions
  where a person may speak freely vs. situations
  where the person may be intimidated.

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Which evidence is competent?

• Data on the weather from a festival participant.
• Data on concert attendance from a ticket taker.
• Information on the misuse of company property
  from an estranged spouse.
• Information on the potential misuses of company
  sick leave by a supervisor.

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Increasing Competency

• Obtain written representation from officials of
  the audited entity

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Relevant

• Relevant information supports engagement
  observations and recommendations, and is
  consistent with the engagements objectives.

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Is this evidence relevant?

• The head cashier recently purchased a new house
  and a new BMW.
• The athletic field scheduler is on the board of
  the soccer association.
• The quirky secretary likes to use fuchsia files.

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Useful

• Useful information helps the organization meet
  its goals.

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Reliability of Evidence

• What can impact the reliability of evidence?

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Reliability of Evidence

• Fact vs. Inference
• Accuracy
• Misinterpretation
• Conclusiveness

22
Fact vs. Inference
Bill and Jane Smith, with Timmy, age 10, and
Susie, age 7, went for a ride in the country. On
the way home, they stopped at Baskin-Robbins for
a treat. Which of the following is true, false
or unknown?

• Mr. And Mrs. Smith took their children for a
  drive.
• They ate ice cream cones on the way home.
• Jack Smith did not go with them.

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Exercise

• Look at some of the evidence and decide
• is the evidence physical, testimonial,
  documentary or analytical, and
• is it competent, relevant, and/or sufficient?