Think of an auditor as a detective. You cannot just believe what the client tells you — you need evidence to back up your opinion. SA 500 is the standard that tells you what counts as evidence and how good that evidence must be.
Audit evidence is all the information an auditor uses to arrive at the conclusions that form the audit opinion. This includes accounting records (ledgers, journal entries, bank statements) as well as other information like minutes of board meetings, management representations, and even your own observations on the factory floor. The auditor's job is to collect enough of the right kind of evidence.
SA 500 judges evidence on two dimensions — sufficiency and appropriateness. Sufficiency is about quantity: have you gathered enough? Appropriateness is about quality, and it has two sub-parts — relevance (does the evidence relate to the assertion you're testing?) and reliability (can you trust it?). These two dimensions are linked: if evidence is highly reliable, you may need less of it; if it's weak, you need more. The standard also lays down a useful hierarchy of reliability — external evidence beats internal evidence; original documents beat photocopies; direct auditor observation beats management representations; documentary evidence generally beats oral evidence.
To actually gather evidence, auditors use seven core audit procedures: Inspection (examining documents or physical assets), Observation (watching a process, like a stock count), External Confirmation (directly asking a third party — e.g., writing to the bank for a balance), Recalculation (re-doing the client's maths), Reperformance (re-executing a control or procedure), Analytical Procedures (comparing figures to expectations — ratio analysis, trend analysis), and Inquiry (asking questions of management or staff). Inquiry alone is never sufficient — it must be corroborated by other procedures. This is a classic exam trap. These procedures are used during three phases: risk assessment, tests of controls, and substantive procedures (tests of details + analytical procedures).