Aggregation of Evidence in Auditing: A Likelihood Perspective.

Abstract We have discussed a general scheme for aggregating audit evidence under the probability theory framework. We have argued that audit evidence forms a network of variables, variables being the accounts constituting the financial statements, the audit objectives of the accounts, and the financial statement as a whole. We have derived general expressions for combining evidence for two situations: (1) various items of evidence bearing on one variable, and (2) various items of evidence bearing on a cluster of variables. These general results are used to demonstrate how audit evidence can be aggregated on an actual audit to obtain posterior probability that the account or the financial statements are fairly presented. We have also discussed various types of dependencies encountered by the auditor and how these dependencies can be treated in the framework. Several limitations of the present study have been discussed and suggestions for further research are presented.