## Audit Evidence (SA 500)

### What is Audit Evidence?

Audit evidence is the information used by the auditor to arrive at conclusions on which the audit opinion is based.

### Two Quality Dimensions of Evidence

Dimension	What It Measures	Depends On
Appropriateness	Quality of evidence	Relevance + Reliability
Sufficiency	Quantity of evidence	ROMM assessment + Quality of evidence

> These two dimensions are interdependent: poor quality evidence requires more quantity to compensate, but quantity alone can never fix fundamentally unreliable evidence.

### Relevance

Evidence is relevant when it has a logical connection between:

1. The purpose of the audit procedure, and

2. The assertion under consideration.

Ask: Does this piece of evidence actually test the assertion I am trying to test?

### Reliability Hierarchy (Higher → Lower)

1. External > Internal evidence

2. Direct > Indirect evidence

3. Documentary > Oral evidence

4. Original > Photocopied documents

5. Evidence is more reliable when internal financial controls are effective

### Audit Procedures – Six Ways to Gather Evidence

Procedure	Core Idea
Inspection	Examining records, documents, or tangible assets (3 tiers: 3rd-party held, 3rd-party created + entity-held, entity-created + entity-held)
Observation	Watching a process performed by others (e.g., auditor observes client's inventory count)
Inquiry	Seeking information from knowledgeable persons inside or outside the entity
Confirmation	Written response corroborating information in the accounting records
Analytical Review	Studying ratios/trends and investigating unusual fluctuations
Recalculation	Checking mathematical accuracy (manual or electronic)
Re-performance	Auditor independently re-executes the entity's own controls/procedures

### Using an Expert's Work as Evidence

Step 1 – Evaluate CCO: Competence, Capabilities, and Objectivity of the expert.

Step 2 – Understand their work.

Step 3 – Evaluate appropriateness, considering:

Relevance and reasonableness of findings/conclusions, consistency with other evidence
Appropriateness of significant assumptions and methods
Relevance, completeness, and accuracy of source data used

Worked example

### Example 1

Relevance test: An auditor wants to verify the existence assertion for fixed assets. Physically inspecting the asset directly tests this assertion → highly relevant evidence. A depreciation schedule, while useful for valuation, does not test whether the asset actually exists.

### Example 2

Reliability hierarchy in practice: A supplier invoice is available both as an original and a photocopy. The original is always preferred. If only a photocopy is available, the auditor should seek corroborating evidence (e.g., confirmation from the supplier, payment records) because photocopied documents are ranked lower in the reliability hierarchy.

### Example 3

Re-performance vs. recalculation: Recalculation – the auditor re-adds a depreciation schedule to verify arithmetic. Re-performance – the auditor independently performs a bank reconciliation that the client's internal team originally prepared, to verify controls were working correctly.

⚠️ Common exam mistakes

Confusing sufficiency (quantity) with appropriateness (quality) – more evidence cannot compensate for evidence that is fundamentally irrelevant or unreliable
Treating oral evidence as equivalent to documentary evidence – documentary evidence is always ranked higher in the reliability hierarchy
Assuming internal evidence is sufficient when external evidence is obtainable – external evidence is always preferred
Confusing Inquiry (SA 500 procedure) with Confirmation (SA 505) – inquiry is asking questions; confirmation is a formal written response corroborating accounting records
Forgetting the reliability hierarchy is contextual: even internal evidence can be reliable when strong internal financial controls exist

Bare-Act text Definition – Audit Evidence · SA 500 – Audit Evidence (ICAI) · click to expand

Audit evidence means information used by the auditor in arriving at the conclusions on which the auditor's opinion is based. Audit evidence includes both information contained in the accounting records underlying the financial statements and other information.

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Nature, Sufficiency, Appropriateness, and Procedures for Gathering Audit Evidence

Worked example

⚠️ Common exam mistakes