Audit Evidence, Procedures and Documentation
Evidence concepts
ISA 500 defines evidence as sufficient (quantity) and appropriate (relevance and reliability). Reliability hierarchy: auditor's direct observation > external confirmations > internal documents > oral representations. Know procedures: inspection, observation, inquiry, confirmation (ISA 505), recalculation, reperformance, analytical procedures (ISA 520). ISA 230 requires documentation sufficient for an experienced auditor to understand the work performed, evidence obtained, and conclusions reached. ISA 580 covers written representations; ISA 570 going concern evidence; ISA 550 related parties.
Traps in exam questions
- Treating inquiry alone as sufficient evidence - it is the weakest procedure.
- Confusing written representations with substitute evidence; they support but do not replace other evidence.
- Forgetting that documentation must be finalized within the required timeframe and that changes after the report date require justification.
- Assuming external confirmation is always required - it is required for certain balances (e.g., bank, receivables) unless impracticable, with alternatives.
- Misjudging reliability of internally generated evidence.
Rule of thumb
Rank evidence by independence from the client: the more external and directly obtained, the more reliable. When a question asks "which is most persuasive?", choose the most independent source.
Worked example
A client provides an internally prepared aged receivables list. Under ISA 505, the auditor sends external confirmations; if responses are not received, alternative procedures (subsequent cash receipts, shipping documents) are performed to obtain sufficient appropriate evidence.