## SA 500: Audit Evidence — Meaning & Sources

### Definition

Audit Evidence is the information used by the auditor in arriving at the conclusions on which the auditor's opinion is based.

It includes:

1. Information contained in accounting records underlying the financial statements

2. Other information that authenticates or supplements those records

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### Sources of Audit Evidence

#### A. Information Contained in Accounting Records

Examples
Accounting entries and supporting records (cheques, EFTs)
Invoices
Contracts
General ledger, subsidiary ledger, and adjustments not reflected in journal entries
Worksheets / Spreadsheets

#### B. Other (Corroborating) Information

Examples
Minutes of meetings
Written confirmations from trade receivables and trade payables
Internal control manuals and IC policies & procedures

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### Information Used as Audit Evidence: Two Sub-types

#### 1. Information Produced by the Entity

Auditor must evaluate:

Accuracy — is the information arithmetically and factually correct?
Completeness — has all relevant information been captured?
Sufficiency — is there enough information to support a conclusion?

#### 2. Information Produced by a Management's Expert

Auditor must assess:

Competence — does the expert have the necessary skills and knowledge?
Capability — is the expert able to perform the work in the specific context?
Objectivity — is the expert free from bias or conflicts of interest?
Nature and Scope of the expert's work — obtain an understanding of what the expert actually did.

---

### Relevance and Reliability of Audit Evidence

Two key quality dimensions:

Dimension	Meaning
Relevance	Logical connection to the assertion being tested
Reliability	Dependability of the source — affected by nature and source of evidence

Reliability depends on:

Nature of the evidence (documentary vs. oral; original vs. copy)
Source of the evidence (external vs. internal; direct auditor observation vs. management-provided)

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### Sufficiency vs. Appropriateness

Term	Meaning
Sufficiency	Quantity of audit evidence (is there enough?)
Appropriateness	Quality — relevance AND reliability of the evidence

These two interact: higher-quality (appropriate) evidence may reduce the quantity (sufficiency) needed.

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### Audit Procedures for Obtaining Evidence

Two main categories:

1. Risk Assessment Procedures (RAP) — to understand the entity and assess risk

2. Further Audit Procedures (FAP):

Tests of Controls (TOC) — to test operating effectiveness of controls
Tests of Transactions (ToT)
Tests of Balances (ToB)
Substantive Procedures — to detect material misstatement at assertion level

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### Assertions

Audit evidence is gathered to address management assertions embedded in financial statements (covered in detail under the Assertions topic).

Worked example

### Example 1

Evaluating Entity-Produced Information:

Auditor receives an aged debtors report generated by the client's ERP system to test trade receivables.

Evaluation steps:

Accuracy: Recalculate a sample of ageing buckets; agree totals to the general ledger.
Completeness: Confirm all debtors in the ledger are included in the report.
Sufficiency: Determine whether the sample size and coverage are adequate to support a conclusion on the receivables balance.

### Example 2

Evaluating a Management Expert's Work:

Company obtains a valuation report from an independent property valuer to support the fair value of investment property (₹10 crore).

Auditor's assessment:

Competence: Verify the valuer holds relevant professional qualifications (e.g., Registered Valuer under Companies Act).
Capability: Check that the valuer has experience with commercial property of this type and size.
Objectivity: Confirm the valuer has no financial interest in the company.
Nature & Scope: Understand which valuation method was used (DCF, market comparable), the assumptions applied, and data relied upon.

### Example 3

Reliability Comparison:

For confirming the existence of a bank balance:

Bank confirmation letter obtained directly from the bank by the auditor → high reliability (external, direct)
Bank statement provided by management → lower reliability (external source, but management-intermediated)
Oral statement by CFO → lowest reliability (internal, unwritten)

Conclusion: Auditor prefers the bank confirmation as the primary audit evidence.

⚠️ Common exam mistakes

Confusing 'sufficiency' (quantity) with 'appropriateness' (quality = relevance + reliability) — they are distinct and both required.
Treating all management-provided information as equally reliable regardless of source — entity-produced information needs accuracy, completeness, and sufficiency checks before reliance.
Forgetting the three dimensions when evaluating a management expert: competence, capability, AND objectivity — students often cite only competence.
Assuming that more audit evidence always compensates for poor quality — SA 500 requires both sufficient AND appropriate evidence; quantity cannot substitute for quality.
Treating accounting records alone as sufficient audit evidence without corroborating with other information (e.g., external confirmations, minutes, contracts).

Bare-Act text SA 500 – Audit Evidence (Definitions and Requirements) · SA 500 · click to expand

Audit evidence is the information used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Audit evidence includes both the information contained in the accounting records underlying the financial statements and other information. Sufficiency is the measure of the quantity of audit evidence. Appropriateness is the measure of the quality of audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditor's opinion is based.

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SA 500 – Audit Evidence: Meaning and Sources

Worked example

⚠️ Common exam mistakes