## SA 500 – Audit Evidence: Meaning and Types

### Meaning

Audit Evidence = Information used by the auditor in arriving at the conclusions on which the audit opinion is based.

### What Evidence Includes

Evidence has two components:

Component	Description
Accounting Records	Information contained within the books of account
Other Information	Information that authenticates / corroborates accounting records

#### Accounting Records Include:

Records of initial accounting entries (journals, day books)
Supporting records (invoices, contracts)
General ledger and subsidiary ledger
Journal entries
Worksheets and spreadsheets (e.g., depreciation calculations)

#### Other Information (Authenticating Records) Includes:

Minutes of meetings
Written confirmations
Internal control manuals
Depreciation calculations

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### Types of Audit Evidence

#### A) By Nature

Type	What It Involves	Example
Visual	Observing physical evidence	Inventory counting
Oral	Discussions with management / staff	Discussions with TCWG (Those Charged with Governance)
Documentary	Written or electronic records	FD Certificate, Loan Agreement

#### B) By Source

Type	Originates From	Example
Internal	Within the client's organisation	Sales-related documents, internal memos
External	Outside the client's organisation	Purchase invoices from suppliers, bank statements

> Reliability Rule: External evidence is more reliable than internal evidence.

> Reason: It comes from an independent third party who has no motive to manipulate the client's accounting information.

Worked example

### Example 1

A bank confirmation letter sent by the bank directly to the auditor is external evidence — more reliable than the client's own bank reconciliation statement (internal evidence).

### Example 2

Physically counting inventory (visual evidence) combined with tracing items back to purchase invoices (documentary evidence) provides stronger combined evidence than a management representation letter (oral) alone.

### Example 3

An auditor reviews the minutes of board meetings to verify approval of a significant capital expenditure — the minutes are 'other information' that authenticates the accounting entry.

⚠️ Common exam mistakes

Treating all documentary evidence as equally reliable — an externally sourced document (supplier invoice) is more reliable than an internally generated one (internal purchase order)
Confusing the two classifications: 'by nature' (visual / oral / documentary) and 'by source' (internal / external) — these are independent dimensions
Assuming oral evidence (inquiry) is sufficient on its own — SA 500 explicitly states inquiry alone is NOT sufficient appropriate audit evidence
Overlooking that accounting records alone are insufficient — other corroborating information is also part of audit evidence

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

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SA 500 – Audit Evidence: Meaning, Includes, and Types (by Nature and Source)

Worked example

⚠️ Common exam mistakes