Evidence: Types & Procedures

Evidence quality

• Sufficient (quantity) + appropriate (relevant + reliable).
• External > internal; auditor-obtained > inquiry; documentary > oral; originals > copies.
• Information produced by the entity: test accuracy and completeness.

Direction

Vouching (record → document) = existence/occurrence. Tracing (document → record) = completeness.

Confirmations

• Auditor controls sending and receiving.
• Positive non-response → alternative procedures (subsequent receipts).
• Negative alone only if: low risk and effective controls, many small homogeneous balances, few exceptions expected.
• Management refuses → inquire, evaluate, alternative procedures; else scope limitation.

Inventory

Attend count if material; test counts both ways; cutoff; roll forward if not at year-end.

Must-know procedures

• Unrecorded liabilities: disbursements after year-end.
• Kiting: bank transfer schedule.
• Lawyer won't respond → scope limitation.

Documentation

Experienced auditor standard; assemble within 60 days; keep 5 years (issuers: 45 days, 7 years).

Exam traps

• Receivable confirmations test existence, not valuation — a customer can confirm a balance it will never pay.
• Payable confirmations target completeness: confirm with major vendors, including those with small or zero balances.
• Electronic confirmations are acceptable if the auditor addresses the risk of interception or alteration.
• Observing the count tests existence, not ownership — goods held on consignment may be on the floor.