Audit Evidence
Domain 4 tests whether you can choose procedures that produce sufficient appropriate evidence and can grade evidence by reliability.
Assertions and procedures
SA 500 requires evidence sufficient in quantity and appropriate in relevance and reliability. Procedures include inspection of records and assets, observation, external confirmation (SA 505), recalculation, re-performance, analytical procedures (SA 520) and inquiry. Inquiry alone is never enough; it must be corroborated.
Reliability ranking
Evidence generated directly by the auditor is stronger than evidence from the entity; external evidence is stronger than internal; documentary stronger than oral; originals stronger than copies. Third-party confirmation is strong for existence and rights but weak for valuation.
Sampling and estimates
SA 530 allows statistical or non-statistical sampling; the auditor projects misstatements and considers sampling and non-sampling risk. SA 540 requires the estimate to be challenged: review how management made it, compare with subsequent events, and use the auditor's own point estimate or range where appropriate.
Worked example
Trade receivables of 8 crore. The auditor selects 25 debtors covering 60% of value for positive confirmation, follows up non-replies with a second request, then uses alternative procedures such as subsequent receipts and dispatch documents. Reasoning: confirmation is external evidence of existence; silence is not evidence, so alternative procedures must be performed and documented.
Related parties and opening balances
SA 550 requires identification of related-party relationships and transactions outside the normal course of business; SA 510 requires procedures on opening balances for a new engagement.
Traps
- Treating an unsigned balance confirmation from a customer as adequate evidence.
- Using negative confirmation where response rates are likely to be low.
- Accepting management's estimate without testing underlying assumptions.
- Confusing sufficiency (quantity) with appropriateness (quality).