The Probative Value of Audit Evidence - The State of the Art and Avenues Towards a General Theory

The Probative Value of Audit Evidence — The State of the Art and Avenues Towards a General Theory Ulfert Gronewold University of Potsdam Chair of Business Administration, Accounting andAuditing August-Bebel-Str. 89/ Haus 3 D-14482 Potsdam (Germany) phone: +49 (0)331-977-3563 fax: +4(0)331-977-3331 e-Mail: gronew@uni-potsdam.de October 2005 The Probative Value of Audit Evidence — The State of the Art and Avenues Towards a General Theory ABSTRACT: Auditors must assess whether financial statements present fairly the actual state of a firm’s affairs. However, this state usually does not exist when the audit is carried out and can no longer be observed by the auditor. Rather, the auditor is dependent on audit evidence to draw conclusions about the affairs in question. Professional auditing standards require auditors to assess evidence critically, including consideration of possible fraud. Audit quality directly depends on correctly evaluating the probative value of evidence, which is indispensable for a correct reconstruction of the affairs in question. However, current auditing literature virtually does not take note of this problem. A better understanding or even a theory of probative value would be important. Prior research on this topic is scattered and for the most part not even noticed by today’s auditing research. Scientific progress in this field requires a thorough review ...