## Relevance and Reliability of Audit Evidence

These are the two qualitative dimensions of Appropriateness of audit evidence.

### Relevance

Relevance is the logical connection between the audit procedure and the assertion under examination.

The direction of testing matters critically.
To test overstatement → start from recorded figures and trace outward (e.g., test recorded payables).
To test understatement → start from outside the records and trace inward (e.g., test unrecorded liabilities via subsequent disbursements, unpaid invoices, unmatched receiving reports).

### Reliability

Reliability is affected by the source, nature, and circumstances of the evidence, including controls over its preparation.

#### Five factors that increase reliability:

Factor	Why it increases reliability
Obtained from independent external sources	Not influenced by management
Related internal controls are effective	Reduces risk that internal documents are manipulated
Obtained directly by the auditor	No intermediary who could alter it
Obtained in documentary form	Verifiable, permanent record
Original documents rather than copies	Copies could be altered

> Generalisations about reliability always have exceptions — always apply professional judgement.

Worked example

### Example 1

Relevance – direction of testing (overstatement): To test whether accounts payable is overstated, the auditor traces recorded payable balances to supporting purchase invoices — testing from the books outward. This is relevant because it checks if recorded amounts actually exist.

### Example 2

Relevance – direction of testing (understatement): To test whether accounts payable is understated, the auditor examines subsequent cash disbursements after year-end and checks for unmatched receiving reports — starting outside the books. Testing only recorded payables would miss unrecorded liabilities.

### Example 3

Reliability exception: A confirmation received from an external supplier is normally reliable, but if that supplier is a related party or lacks knowledge of the transaction, its reliability is reduced despite being external.

⚠️ Common exam mistakes

Using the same procedure to test both overstatement and understatement — direction of testing must be matched to the specific assertion.
Assuming external evidence is always more reliable than internal evidence — reliability depends on the specific circumstances.
Confusing Relevance (does this procedure address the right assertion?) with Reliability (can I trust the information itself?).

Reference:

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