## SA 500: Meaning and Types of Audit Evidence

### Definition

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

It includes:

1. Information in accounting records underlying the financial statements

2. Other information that authenticates the records and supports the true and fair view

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### Component 1: Accounting Records

Accounting records include:

Records of initial accounting entries and supporting records (cheques, electronic fund transfer records)
Invoices and contracts
General and subsidiary ledgers, journal entries, and other adjustments not reflected in journal entries
Work sheets, spreadsheets supporting cost allocations, computations, reconciliations, and disclosures

### Component 2: Other Information

Other information used as audit evidence includes:

Minutes of meetings
Written confirmations from trade receivables and trade payables
Internal control manuals

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### Types of Evidence

#### (A) By Nature

Type	Description	Example
Visual	What the auditor observes	Observing physical verification of inventory by client's staff
Oral	Verbal information obtained	Discussion with management and officers
Documentary	Written or electronic documents	Fixed deposit certificate, loan agreement, sales bill

#### (B) By Source

Type	Origin	Examples
Internal Evidence	Originates within the audited organisation	Sales invoices, copies of sales challan, goods received note, inspection report, cash memo copies, debit/credit notes
External Evidence	Originates outside the client's organisation	Purchase invoices, supplier's challan, debit/credit notes from third parties, quotations, confirmations

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### Reliability: Internal vs. External Evidence

1. External evidence is generally more reliable — third parties have no incentive to manipulate the client's accounting records

2. Exception: If auditor doubts the independence of a third party (e.g., invoice from an associated concern), greater vigilance is required

3. Best practice: Auditor should try to match internal and external evidence wherever practicable

4. Where external evidence is unavailable: Check whether various internal evidences corroborate each other

Worked example

### Example 1

Example — Documentary vs. Oral: An auditor verifying a term loan asks the management about repayment schedule (oral evidence). The auditor then inspects the loan agreement and bank statements (documentary evidence). Documentary evidence is stronger — the loan agreement is direct evidence of the obligation.

### Example 2

Example — Internal vs. External Evidence: To verify a sale of ₹50 lakh, the auditor examines: (a) the client's sales invoice and dispatch records (internal), and (b) the customer's purchase order and delivery confirmation (external). The external documents corroborate the internal ones — together they provide strong evidence that the sale occurred.

### Example 3

Example — Doubting Third-Party Independence: An auditor receives a confirmation from a supplier confirming a ₹2 crore outstanding balance. On investigation, the auditor finds the supplier is 40% owned by the client's promoter. Being an associated concern, the confirmation cannot be treated as independent external evidence — the auditor must apply additional procedures.

⚠️ Common exam mistakes

Treating oral evidence (management representations) as sufficient without documentary corroboration.
Assuming all external evidence is reliable — it must be from an independent third party, not an associated entity.
Confusing 'accounting records' with 'audit evidence' — accounting records are a subset of audit evidence, not the whole.
Overlooking electronic records (emails, EFT records) as valid documentary audit evidence.
Not cross-matching internal and external evidence — matching is best practice and catches manipulation in either direction.

Bare-Act text Definition of Audit Evidence · SA 500 – Audit Evidence · click to expand

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

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