Sufficient, Appropriate Evidence

"The objective of the auditor is to design and perform audit procedures in such a way to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor's opinion.' (ISA 500 Audit Evidence)

• Sufficiency relates to the quantity of evidence.
• Appropriateness relates to the quality and reliability of evidence.

Sufficient evidence

There needs to be 'enough' evidence to support the auditor's conclusion. What is 'enough' at the end of the day is a matter of professional judgement. However, when determining whether they have enough evidence on file the auditor must consider:

• the risk of material misstatement;
• the materiality of the item;
• the nature of accounting and internal control systems;
• the auditor's knowledge and experience of the business;
• the results of controls tests;
• the size of a population being tested;
• the size of the sample selected to test; and
• the reliability of the evidence obtained.

Consider, for example, the audit of a bank balance:

Auditors will confirm year-end bank balances directly with the bank. This is a good source of evidence but on its own is not sufficient to give assurance regarding the completeness and final valuation of bank and cash amounts. The key reason is timing differences. The client may have received cash amounts or cheques before the end of the year, or may have paid out cheques before the end of the year, that have not yet cleared the bank account. For this reason the auditor should also perform a bank reconciliation.

In combination these two pieces of evidence will be sufficient to give assurance over the bank balances.

Appropriate evidence

Appropriateness of evidence breaks down into two important concepts:

• reliability; and
• relevance.

Reliability

Auditors should always attempt to obtain evidence from the most trustworthy and dependable source possible. Evidence is considered more reliable when it is:

• obtained from an independent external source;
• generated internally but subject to effective control;
• obtained directly by the auditor;
• in documentary form; and
• in original form.

Broadly speaking, the more reliable the evidence the less of it the auditor will need. However the converse is not necessarily true: if evidence is unreliable it will never be appropriate for the audit, no matter how much is gathered.

Relevance

To be relevant audit evidence has to address the objective/purpose of a procedure. For example:

Attendance at an inventory count provides us with a good example of the relevance of procedures. During counting the auditor considers the relationship between inventory records and physical inventories, as follows:

• identifying items of physical inventory and tracing them to inventory records to confirm the completeness of accounting records; and
• identifying items on the inventory record and tracing them to physical inventories to confirm the existence of inventory assets.

Whilst the procedures are perhaps similar in nature their purpose (and relevance) is to test different assertions regarding inventory balances.

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