## Appropriateness of Audit Evidence

Appropriateness = Quality of audit evidence

It has two dimensions: Reliability and Relevance

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### A) Reliability of Audit Evidence

Evidence is more reliable when:

Factor	More Reliable	Less Reliable
Source	Obtained from independent sources outside the entity	Obtained from within the entity
Method of Obtaining	Obtained directly by the auditor	Obtained indirectly
Example	Observing application of a control	Merely inquiring about the control
Form	Documentary form	Oral form
Document type	Original documents	Photocopies or digitised copies
Internal controls	Effective internal controls exist	Weak internal controls

> Note: Reliability of internally generated evidence is directly affected by the effectiveness of internal controls.

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### B) Relevance of Audit Evidence

Relevance = Logical connection between the audit procedure and the assertion being tested.

Different assertions require different procedures — a procedure relevant for one assertion may be irrelevant (or even misleading) for another.

#### Practical Example: Accounts Payable

Assertion to Test	Relevant Audit Procedure
Overstatement of Accounts Payable	Examine recorded payables; confirm directly with creditors
Understatement of Accounts Payable	Check subsequent disbursements; review unpaid invoices; obtain supplier statements; check unmatched receiving reports

> Key Insight: To test for understatement, you must look at items not yet recorded — looking only at recorded payables will miss omitted liabilities.

Worked example

### Example 1

To test existence of inventory (are recorded items real?), the auditor traces from the inventory list to the physical goods. To test completeness (are all goods recorded?), the auditor traces from physical goods back to the inventory list — the direction reverses based on the assertion.

### Example 2

A photocopy of a loan agreement is less reliable than the original signed document. The auditor should request the original and note any differences between the copy on file and the original.

### Example 3

Observing the cashier processing a transaction tests whether the control is actually operating, which is more reliable evidence than asking the cashier whether they follow the procedure (inquiry).

⚠️ Common exam mistakes

Using the same audit procedure for both overstatement and understatement assertions — they require opposite-direction testing
Confusing reliability with relevance — evidence can be relevant but unreliable (e.g., a forged internally-generated document), or reliable but irrelevant to the specific assertion being tested
Treating photocopies as equivalent to originals — SA 500 specifies original documents are more reliable
Ignoring the role of internal controls when assessing reliability of internally generated evidence

Reference: SA 500 – Appropriateness of Audit Evidence — SA 500 – Audit Evidence (ICAI)

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SA 500 – Appropriateness of Audit Evidence: Reliability and Relevance

Worked example

⚠️ Common exam mistakes