Audit Evidence
Sufficiency and appropriateness
Evidence must be sufficient (quantity) and appropriate (relevance and reliability). Reliability hierarchy: auditor's direct observation > external evidence > internal evidence > oral representations. Written beats oral; original beats copies.
Know the procedures: inspection, observation, enquiry, confirmation, recalculation, re-performance, and analytical procedures. External confirmations (e.g. bank, receivables) are strong but can be intercepted - control the process.
Sampling and estimates
Understand sampling risk vs non-sampling risk, and statistical vs non-statistical sampling. For accounting estimates, evaluate assumptions, methods, and data; consider management bias and hindsight.
Worked example
Confirming a receivable balance: send the request directly, control replies, and follow up non-responses with alternative procedures (subsequent cash receipts, shipping documents).
Traps
- Treating management representations as strong evidence - they are the weakest and used last.
- Confusing inspection of a document (existence of the document) with proof of valuation or rights.
- Forgetting that analytical procedures are substantive procedures when expectations are precise.
- Assuming more sample items always fixes a systemic error - investigate the cause first.