Audit Evidence: Types, Sources and What Makes Evidence Sufficient

What Is Audit Evidence?

Audit evidence is all the information used by the auditor to arrive at conclusions on which the audit opinion is based. Under ISA 500, auditors must obtain sufficient appropriate audit evidence to reduce audit risk to an acceptably low level.

Sufficiency refers to the quantity of audit evidence — the more risk associated with an assertion, the more evidence required.

Appropriateness refers to the quality — the relevance and reliability of the evidence in relation to the specific assertion being tested.

Sources of Audit Evidence

Internal evidence: Created by the entity — invoices, ledgers, management accounts, board minutes. Generally less reliable than external evidence because it originates from within the organisation being audited.

External evidence: Created outside the entity — bank statements, supplier invoices, solicitor confirmations, third-party confirmations. Generally more reliable.

Auditor-generated evidence: Created by the auditor directly — recalculations, physical inspections, observations. The most reliable type as it is under the auditor's control.

Factors Affecting Reliability

ISA 500 sets out factors that influence the reliability of evidence:

Evidence obtained directly by the auditor is more reliable than evidence obtained indirectly. Evidence in documentary form is more reliable than oral representations. Original documents are more reliable than photocopies. External evidence is more reliable than internal evidence. Evidence from sources independent of the entity is more reliable than evidence from management.

Types of Audit Evidence by Procedure

Physical evidence: Obtained through inspection or observation — inventory counts, asset inspections. High reliability for existence, limited for valuation.

Documentary evidence: Invoices, contracts, board minutes, bank statements. Reliability depends on whether the document originated internally or externally.

Oral evidence: Responses to enquiry — management representations, discussions with staff. Least reliable type on its own; must be corroborated.

Analytical evidence: Results of analytical procedures — comparison of ratios, trends, benchmarks. Provides corroborative evidence about plausibility of recorded balances.

Management Representations

A written representation letter from management is required under ISA 580. It covers matters that cannot be confirmed through other procedures — for example, management's intention to hold an investment to maturity, or that all known liabilities have been disclosed. A representation letter is not a substitute for other evidence; it supplements it.

Evaluating Evidence

Auditors must evaluate whether the evidence obtained is consistent, whether contradictions exist between different sources, and whether any unresolved matters require further investigation. Where evidence is inconsistent or insufficient, additional procedures must be performed before an opinion is issued.