Sufficient Appropriate Audit Evidence

Overview

Auditors have the responsibility to obtain sufficient appropriate audit evidence. In this case, we should know what is meant by sufficient appropriate audit evidence.

In the audit context, the “sufficient” usually refers to the quantity while the “appropriate” usually refers to the quality.

In this case, sufficient appropriate audit evidence means that auditors need to obtain a number of audit evidence and the quality of such evidence should meet the acceptable auditing standards.

It is easier to understand when we breakdown the phrase into two parts, sufficient and appropriate.

Sufficient Audit Evidence

Sufficient audit evidence is the context that refers to the quantity or number of audit evidence. Likewise, the quantity of audit evidence will be influenced by the risk of material misstatement of financial statements and the quality of evidence obtained.

First, the number of audit evidence that auditors need to obtain will directly link to the risk of material misstatement. In general, the higher the risk is, the more audit evidence is required to respond to such risk.

In this case, auditors need to properly assess the risk of material misstatement before they can decide how much audit evidence will be required to support their conclusion.

Additionally, the quality of audit evidence also influences the number of audit evidence that auditors need to obtain. Likewise, if the evidence that auditors obtained are of high quality, they may need less evidence to support their opinion.

For example, in the audit of fixed assets, if the client’s internal control is strong, auditors may need only one audit evidence of depreciation recalculation worksheet to be sufficient in ensuring the valuation assertion of the fixed assets.

However, the opposite does not apply to this concept. This means that auditors cannot use a large number of audit evidence to offset their low quality or their unreliable nature of such evidence.

Hence, auditors should always consider the reliability of any information that they use as audit evidence.

Appropriate Audit Evidence

Appropriate audit evidence refers to the quality of audit evidence, in which the level of quality will be depended on the reliability of the information. This is why the concept of appropriate audit evidence is usually linked to the context of reliable audit evidence.

For example, the auditors’ generated evidence, such as recalculation working, is usually considered to be the audit evidence of the highest quality. This is due to it is considered the most reliable as this type of evidence is the auditors’ working.

Likewise, the level of quality or reliability of audit evidence is depending on the nature and type of information that is used as evidence.

The reliability of audit evidence can be described as in examples below:

• Auditors’ generated evidence is more reliable than those that are obtained from other parties.
• External audit evidence is more reliable than evidence that is obtained from the internal sources.
• Internal audit evidence which is obtained from the client that has strong internal control is more reliable than those obtained from the weak internal control system.
• Written audit evidence is more reliable than those of oral type of evidence.
• Original document of evidence is more reliable than those of photocopied one.

Factors that affect sufficient appropriate audit evidence

Below are some examples of the factors that affect sufficient appropriate audit evidence.

• Inherent risk – Inherent risk is part of the risk of material misstatement; so usually the higher the inherent risk is, the more audit evidence is required.
• Control risk – Control risk is also part of the risk of material misstatement; in this case, if the control risk is high, more audit evidence and high-quality one may be required.
• Materiality – Usually the items with a big amount will require more and better audit evidence, both in term of quantity and quality.
• Past audit experience – Auditors usually have more knowledge about the old client comparing to the new one. For example, if the client is the same as the previous year and the internal control didn’t change much, auditors may require less audit evidence to support their opinion comparing to those of new clients.
• Audit findings – The result of audit work may change the whole concept of sufficient appropriate audit evidence. For example, if auditors find any error or fraud during audit work, they may need to revise their planning and more audit evidence, both quantity and quality, may be required.
• Type and source of information – Some types of information can provide better audit evidence than others, e.g. the bank confirmation letter alone can ensure the existence, valuation, and rights and obligation assertions.
• Reliability of information – Reliability of information is the factor that directly affect sufficient appropriate audit evidence. For example, in determining the fair value of a financial asset, if such asset is listed in the stock market, we can directly use the stock market information to determine its value. This is because the stock market information is considered reliable. On the other hand, if such asset is not listed in the stock market, many more workings and information may be required.