## Reliability of Audit Evidence — SA 500

### The Core Principle

The reliability of audit evidence depends on its source, nature, and the circumstances under which it is obtained (including controls over its preparation and maintenance).

While exceptions may exist, SA 500 permits certain generalisations that guide the auditor in evaluating reliability.

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### The Five Generalisations (Memory Aid: IDEO)

#	Generalisation	Higher Reliability → Lower Reliability
1	Source: External vs Internal	Evidence from independent external sources is more reliable than internally generated evidence
2	Internal Controls	Internally generated evidence is more reliable when entity controls over its preparation are effective
3	Directness	Evidence obtained directly by the auditor is more reliable than evidence obtained indirectly or by inference
4	Form: Documentary vs Oral	Documentary evidence (paper/electronic) is more reliable than oral evidence
5	Original vs Copy	Original documents are more reliable than photocopies, facsimiles, scanned, filmed, or digitised copies

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### Why Copies Are Less Reliable

Reliability of digitised/photocopied documents depends on the controls over their preparation and maintenance — the auditor cannot be certain the copy is unaltered without those controls.

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### Practical Application

These generalisations inform auditors in designing audit procedures:

Bank confirmation (external, direct) > Bank reconciliation prepared by client (internal, indirect)
Original invoice > Scanned invoice in ERP
Physical inspection by auditor > Management's certificate
Written representation > Oral confirmation

Worked example

### Example 1

Q (MD6 – 5 Marks): The reliability of audit evidence depends on source, nature, and circumstances. Discuss generalisations about reliability of audit evidence.

A: While recognising that exceptions may exist, the following generalisations about reliability are useful:

1. Independent external sources: Evidence obtained from independent sources outside the entity is more reliable (e.g., bank confirmation directly from the bank).

2. Effective internal controls: Internally generated evidence is more reliable when the entity's controls over its preparation and maintenance are effective.

3. Direct vs indirect: Audit evidence obtained directly by the auditor (e.g., physical count) is more reliable than evidence obtained indirectly or by inference.

4. Documentary vs oral: Documentary evidence — whether paper, electronic, or other medium — is more reliable than oral evidence.

5. Original vs copy: Original documents are more reliable than photocopies, facsimiles, or digitised/filmed versions, because the reliability of copies depends on controls over their preparation and maintenance.

⚠️ Common exam mistakes

Stating that internally generated evidence is always unreliable — it is more reliable when internal controls are effective
Forgetting that these are generalisations, not absolute rules — 'exceptions may exist' is a key qualifier SA 500 explicitly uses
Treating electronic documents as equally reliable as originals without considering controls over their preparation
Confusing 'indirect evidence' with 'external evidence' — external evidence obtained indirectly (e.g., a forwarded bank statement from management rather than direct bank confirmation) is less reliable
Not knowing all five generalisations — exam questions commonly ask to 'list and explain' all of them for full marks

Bare-Act text Reliability of Audit Evidence · SA 500 — Audit Evidence (ICAI) · click to expand

While recognising that exceptions may exist, the following generalisations about the reliability of audit evidence may be useful: Reliability of audit evidence is increased when obtained from independent sources outside the entity; reliability of internally generated evidence increases when related controls are effective; evidence obtained directly by auditor is more reliable than indirectly; documentary evidence is more reliable than oral; original documents are more reliable than photocopies, facsimiles, or transformed electronic forms.

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Reliability of Audit Evidence — Generalisations (SA 500)

Worked example

⚠️ Common exam mistakes