What Is Chain of Custody?

In this episode of The Sample, Leita Hart-Fanta explains the Chain of Custody using Enron as an example of what NOT to do.

Welcome to The Sample, a quick discussion of auditing concepts and terms that will help you do your work. Conducting an audit in accordance with auditing standards is no small feat and I want to support you. We’ll be referring to the GAO, IIA and AICPA literature to bolster our conversations. Let’s get started.

Transcript

What is Chain of Custody?

In this episode, we answer the question, “What is Chain of Custody?”

Chain of custody tells us that evidence is more likely to be corrupted as more people touch it. So it’s best for the auditor to get the evidence themselves directly from the original source of the evidence. Sometimes corruption of evidence happens accidentally, and sometimes it happens on purpose.

Example of what NOT to do: Enron

Enron, our favorite example of what not to do, modeled a weak link in the chain of custody of financial data. The general ledger accountants at Enron created perfectly valid financial statements and sent those to the executive team for review. The executive team didn’t like what they saw and changed a few key numbers before sending the financials to the SEC, thereby corrupting perfectly good information and turning the financials into a lie.

So do your best as an auditor to get your own evidence and data. It may seem more convenient to allow the auditee to pull the information, but it does add a link to your chain of custody and weakens your evidence.

Want to know more?

Want to know more about this topic and earn some CPE credit at the same time? Try this video course which will earn you Yellow Book hours, as well as dig into the pros and cons of various types of evidence and testing methodologies.

And that wraps it up for another episode of The Sample. True to the nature of a sample, we didn’t talk about everything, so you’ve probably got questions. Write to me at leita@yellowbook-cpe.com and I’ll do my best to fill in the blanks. Thanks for playing.