## Types of Audit Procedures

### 1. Inspection

Examining records, documents, or physical assets

Sub-type	Evidence Provided
Internal records / documents	Varies by source and effectiveness of internal controls
External records / documents	Generally more reliable (third-party source)
Physical examination of tangible assets	Existence only — NOT valuation

> Critical Rule: Inspecting a physical asset (e.g., machinery) proves it exists but does not prove its accounting value (valuation assertion requires separate procedures).

Applications:

Inspection of inventory during a physical count
Inspection of a signed contract (evidences execution)
Test of Controls: inspection provides evidence of authorisation (e.g., approval signatures)

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### 2. Observation

Watching a process or procedure being performed by client staff
Time-bound — provides evidence only at the point of observation
Observer effect — staff may behave differently because they know they are being watched

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### 3. Recalculation

Independently verifying mathematical accuracy of documents or records
Example: Recalculating depreciation on the fixed asset register

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### 4. Reperformance

Independently re-executing a procedure that was originally performed as part of the entity's internal control
Goes beyond recalculation — the auditor re-does the entire control step
Example: Independently preparing a Bank Reconciliation Statement to verify the client's reconciliation

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### 5. Analytical Procedures (SA 520)

Evaluating financial information through analysis of plausible relationships. (Detailed treatment under SA 520.)

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### 6. External Confirmation (SA 505)

Obtaining a direct written response from a third party. (Detailed treatment under SA 505.)

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### 7. Inquiry

Seeking information from knowledgeable individuals — both financial and non-financial
Sources: within OR outside the entity
Can range from formal written requests to informal oral discussions

What responses to inquiry can do:

1. Provide new information previously unknown to the auditor

2. Provide corroborative audit evidence (supporting existing findings)

3. Reveal discrepancies compared to other audit findings → triggers further investigation

4. Form the basis for designing additional audit procedures

> Non-negotiable Rule: Inquiry alone is NOT sufficient appropriate audit evidence.

> It must always be corroborated by other procedures.

Worked example

### Example 1

Observation (Time-bound issue): The auditor attends the year-end inventory count (Observation). If the count happened without the auditor present, this evidence is lost — observation cannot be performed retroactively. The auditor would need alternative procedures.

### Example 2

Inspection vs. Valuation: The auditor physically verifies that a machine is present on the factory floor (confirms existence). A separate valuation report from a technical expert is required to confirm the carrying value — physical inspection alone cannot confirm this.

### Example 3

Reperformance vs. Recalculation: The auditor recalculates depreciation figures (Recalculation — mathematical check only). Separately, the auditor independently prepares the bank reconciliation from scratch using bank statements and cash book (Reperformance — re-executing the internal control).

### Example 4

Inquiry limitation: CFO states that all goods returned by customers are promptly reversed in the sales ledger (Inquiry). Auditor cannot accept this alone — they must inspect credit notes, trace to the ledger, and perform analytical procedures on returns ratios.

⚠️ Common exam mistakes

Treating inquiry as sufficient evidence — SA 500 explicitly states it is NOT sufficient on its own
Assuming observation provides ongoing assurance — it is strictly time-bound to the moment of observation
Confusing recalculation (checking arithmetic) with reperformance (re-executing an entire internal control procedure)
Concluding that physical inspection of an asset confirms its valuation — it only confirms existence
Treating the observer effect as irrelevant — staff may change behaviour when watched, limiting the reliability of observation evidence

Reference: SA 500 – Audit Procedures for Obtaining Audit Evidence — SA 500 – Audit Evidence (ICAI)

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SA 500 – Types of Audit Procedures (Inspection, Observation, Recalculation, Reperformance, Inquiry)

Worked example

⚠️ Common exam mistakes