## **Learning Outcomes**

After reading this article, you will be able to identify the factors that determine the relevance and reliability of audit evidence. You will understand how the source, nature, and circumstances of evidence affect its suitability for supporting audit conclusions. You will recognise best practices for gathering evidence that meets ACCA requirements and be prepared to apply this knowledge under assessment conditions.

## **ACCA Foundations in Audit (FAU) Syllabus**

For ACCA Foundations in Audit (FAU), you are required to understand what makes audit evidence sufficient and appropriate. This article is essential revision for the following syllabus points:

- The importance of audit evidence in supporting the audit opinion
- The definitions and differences between sufficiency, appropriateness, relevance, and reliability of evidence
- Factors affecting the suitability of evidence, including its source and form
- The impact of evidence quality on the auditor’s conclusions

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which of the following is typically considered most reliable as audit evidence?
   a) Written confirmation from management  
   b) Observation by the auditor  
   c) External confirmation from a third party  
   d) Verbal representation from staff

2. State two factors that increase the relevance of audit evidence.

3. True or false? Information produced internally by the client is always more reliable than information obtained from independent external sources.

4. Explain why the timing of obtaining audit evidence can affect its reliability.

## **Introduction**

Audit evidence forms the basis of every audit opinion. To evaluate whether financial statements are free from material misstatement, the auditor must collect evidence that is both sufficient in quantity and appropriate in quality. Not all evidence is equally strong: auditors must assess whether what they gather is relevant to the audit objective and reliable enough to be trusted.

Audit assessments under the ACCA specification will test your ability to judge the quality of audit evidence and apply the concepts of sufficiency, relevance, and reliability in practice.

> **Key Term: audit evidence**
> Information used by the auditor to draw conclusions on which the audit opinion is based. Audit evidence includes both information contained in accounting records and other sources.

## **Relevance of Audit Evidence**

The auditor’s objective is to collect evidence that appropriately addresses each assertion or audit objective. Evidence is relevant if it helps to confirm or refute what the auditor is trying to test.

### Examples of relevance

- Inspecting invoices is relevant for testing the occurrence of purchases.
- Observing an inventory count is relevant for testing the existence of inventory.

Relevance depends on the purpose of the procedure: a document may be relevant for one assertion but not for another.

> **Key Term: relevance**
> The extent to which audit evidence is connected to, and capable of addressing, the specific audit objective or assertion under test.

## **Reliability of Audit Evidence**

Reliability refers to the degree to which audit evidence can be trusted to lead to correct audit conclusions. Reliable evidence reduces the risk of material misstatement going undetected.

The reliability of evidence varies depending on its source, nature, and how it is obtained.

> **Key Term: reliability**
> The measure of the trustworthiness of audit evidence, based on its source, nature, and the circumstances in which it is acquired.
>
> **Key Term: sufficiency**
> The quantity of audit evidence needed. Sufficiency is related to the auditor’s risk assessment: higher risk requires more evidence.

### Factors that affect reliability

1. Source
   - External evidence (from third parties) is often more reliable than internal evidence (from the client).
   - Evidence obtained directly by the auditor (such as actual inspection or recalculation) is usually more reliable than evidence obtained indirectly (such as management representations).

2. Form
   - Written evidence (for example, contracts or confirmations) is more reliable than oral statements.
   - Original documents are more reliable than photocopies or digital scans, as they present less risk of alteration.

3. Controls over preparation
   - Internally-generated evidence is more reliable if the client's internal controls are strong.
   - Weak controls make internally produced documentation less trustworthy.

4. Circumstances
   - Evidence obtained under observation may be more reliable if staff do not know in advance the test will be performed (to avoid altered behaviour).
   - Evidence produced routinely, in the normal course of business, is usually more reliable than evidence prepared specially for the audit.

### **Worked Example 1.1**

You are testing the year-end cash balance. You receive the following: (1) a bank statement posted to the client, (2) a bank confirmation sent directly to you by the bank, and (3) an internal printout from the cash book. Rank these for reliability and explain why.

> **Answer:**
> The bank confirmation sent directly to the auditor is most reliable, as it is independent external evidence received directly. The bank statement is also external but passes through the client. The cash book printout is least reliable as it is produced by the client themselves.

## **Comparing Sufficiency and Appropriateness**

Audit evidence must be sufficient (enough quantity collected) and appropriate (relevant and reliable in quality). The stronger the evidence’s relevance and reliability, the less quantity may be needed. If evidence is weak, more will be required to compensate.

> **Key Term: appropriateness**
> The measure of the quality of audit evidence, combining both its relevance and reliability.

## **Factors Influencing Relevance and Reliability**

Several factors can strengthen or weaken the evidence an auditor obtains:

- Type of evidence: External documentary evidence is generally stronger than management explanations.
- Quality of controls: Strong internal control increases the reliability of internally generated evidence.
- Timing: Evidence closer to the financial period-end (cut-off) is better for that period.
- Method of collection: Direct procedures (observation, recalculation) are more reliable than indirect ones (inquiry).
- Consistency: Evidence corroborated by multiple sources is more persuasive.
- Independence: Evidence from sources independent of the client supports trust in its reliability.

### **Worked Example 1.2**

You are relying on a receivables ledger produced by the client’s accounts department. The business has strong control procedures and regular reconciliations by an independent finance manager. How does this affect the reliability of the ledger as evidence?

> **Answer:**
> The reliability is increased by strong internal controls and independent reconciliation. Nevertheless, a balance should be confirmed by external means (e.g., customer confirmation) if material, as external evidence is still preferred.

### **Exam Warning**

> Do not assume all audit procedures are equally strong for every purpose. Evidence that is reliable for testing completeness may not be reliable for valuation. Choose your evidence with care, linking it to the specific assertion addressed.

### **Revision Tip**

> For exam scenarios: Memorise the hierarchy of reliability—external, original, written, direct. Always think: Where did the evidence come from, and how was it obtained?

## **Summary**

The value of audit evidence lies in its ability to support the auditor’s conclusions. Evidence is only useful if it is both relevant (linked to the assertion tested) and reliable (from a trustworthy source and obtained under strong conditions). Quantity alone is not enough—quality matters more. Auditors must always apply judgement to assess how much and what type of evidence to obtain in order to meet the ACCA's high standards for sufficient appropriate audit evidence.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Define the terms: audit evidence, relevance, reliability, sufficiency, and appropriateness
- Explain the difference between evidence quantity (sufficiency) and quality (appropriateness)
- Identify the main factors that influence evidence relevance and reliability
- Evaluate practical scenarios to determine which type of evidence is preferred
- Understand the relationship between internal controls and the reliability of evidence

## **Key Terms and Concepts**

- audit evidence
- relevance
- reliability
- sufficiency
- appropriateness

Audit evidence - Factors influencing relevance and reliability