Sufficient appropriate evidence
- Sufficiency = quantity (how much)
- Appropriateness = quality: relevance (does it address the right assertion?) and reliability (can it be trusted?)
Higher risk requires more evidence; higher-quality evidence requires less of it.
Reliability hierarchy
| More reliable | Less reliable |
|---|---|
| Auditor's direct personal knowledge | Indirect or inferred evidence |
| External, independent sources | Internally generated by the client |
| Obtained when internal control is effective | Obtained when controls are weak |
| Original documents | Photocopies, faxes, oral statements |
| Written | Oral |
The eight procedures
- Inspection of records/documents — vouching (from records back to source, tests existence/occurrence) and tracing (from source forward to records, tests completeness)
- Inspection of tangible assets — physical examination; strong for existence, weak for rights and valuation
- Observation — watching a process being performed (e.g., inventory count); evidence is limited to the moment observed
- External confirmation — direct written response from a third party
- Recalculation — checking mathematical accuracy
- Reperformance — independently executing a control or procedure the client performed
- Analytical procedures — evaluating plausible relationships in data
- Inquiry — asking; never sufficient on its own and must be corroborated
IMPORTANT — confirmations: A positive confirmation asks the recipient to respond either way and is used when risk is higher or balances are large. A negative confirmation asks for a response only if the recipient disagrees — acceptable only when risk is low, controls are effective, many small homogeneous balances exist, and the auditor expects a low exception rate. Non-response to a negative confirmation is not evidence of agreement.
EXAM TIP: Vouching = existence (start with the recorded number and go find support). Tracing = completeness (start with source documents and make sure they got recorded). Getting this direction right answers a lot of MCQs.