## **Learning Outcomes**

After reading this article, you will be able to explain why audit evidence is essential in an external audit, describe the importance of obtaining sufficient and appropriate evidence, and identify key factors that affect the quality and reliability of audit evidence. You will also develop the ability to distinguish between sufficient and appropriate evidence and apply these concepts to typical ACCA FAU exam scenarios.

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

For ACCA Foundations in Audit (FAU), you are required to understand the role, characteristics, and evaluation of audit evidence. This article covers the following syllabus points:

- The importance and purpose of audit evidence in forming the auditor’s opinion
- The concept of sufficient appropriate audit evidence
- The factors affecting the relevance and reliability of audit evidence
- How the auditor determines what constitutes sufficient and appropriate evidence
- Types of audit procedures used to obtain evidence and their role in the audit process

## **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. What is the main reason why auditors must obtain sufficient appropriate audit evidence during an audit?
   a) To reduce the audit fee
   b) To support the auditor’s opinion
   c) To increase audit documentation
   d) To prepare financial statements

2. Which of the following generally provides the most reliable audit evidence?
   a) Verbal statements from management
   b) Documents generated by the client
   c) External confirmations from third parties
   d) Photocopies of client records

3. State the difference between the sufficiency and appropriateness of audit evidence.

4. List three factors that might influence the auditor’s decision about how much evidence is needed.

## **Introduction**

Audit evidence lies at the centre of the external audit process. Auditors draw their conclusions and form their opinions based on the evidence they collect through various audit procedures. The reliability of the auditor’s opinion, and the credibility of the financial statements, both depend on the quality and quantity of evidence obtained.

Sufficiency and appropriateness of audit evidence are not merely technical requirements—they directly determine the effectiveness of the audit. Weak, inadequate, or unreliable evidence can lead to incorrect conclusions and, ultimately, undermine stakeholders’ trust.

> **Key Term: audit evidence**
> Information used by the auditor to support the conclusions on which the audit opinion is based. This includes financial records and other relevant data.

## **THE IMPORTANCE OF AUDIT EVIDENCE**

Auditors are required to collect audit evidence to form a reasonable basis for their opinion on the financial statements. Reliable and relevant evidence allows the auditor to confirm, challenge, or question information supplied by management.

An auditor’s responsibilities, as established by international standards, cannot be fulfilled without proper evidence. Obtaining sufficient appropriate evidence ensures that the audit is not merely a box-ticking exercise but a meaningful process that protects external users’ interests.

> **Key Term: sufficient appropriate audit evidence**
> Evidence that is both adequate in quantity (sufficient) and high in quality or relevance (appropriate) to support the auditor’s conclusions.

## **SUFFICIENCY AND APPROPRIATENESS**

### Sufficiency

Sufficiency is the measure of how much audit evidence has been obtained. The amount required depends on factors such as audit risk, the materiality of balances or transactions, and the effectiveness of the client’s internal controls. The greater the assessed risk, the more evidence is usually needed.

### Appropriateness

Appropriateness relates to the quality of evidence—its relevance and reliability. Evidence must be directly linked to the assertions being tested (relevance) and come from trustworthy sources (reliability).

> **Key Term: relevance**
> The extent to which audit evidence directly relates to the audit objective or assertion being tested.
>
> **Key Term: reliability**
> The degree to which audit evidence can be depended upon to provide accurate support for the auditor’s conclusions.

## **SOURCES AND QUALITY OF AUDIT EVIDENCE**

Audit evidence can be gathered from within the client’s own records (internal), outside organisations (external), or generated by the auditor’s own procedures. Different types of evidence offer varying degrees of reliability.

In general:

- Evidence from independent external sources is the most reliable (e.g., bank confirmations).
- Evidence created by the auditor (e.g., recalculating figures) can also be highly reliable.
- Evidence obtained from the client may be less reliable, especially if internal controls are weak.
- Oral evidence is generally the least reliable unless supported by written documentation.

## **FACTORS INFLUENCING THE NEED FOR SUFFICIENT APPROPRIATE EVIDENCE**

Several factors affect what constitutes “enough” and “good” evidence, including:

- The assessed risk of material misstatement: Higher risk requires more, and higher-quality, evidence.
- Materiality: Material balances or transactions typically require more evidence than immaterial ones.
- The nature of the accounting area (routine or judgemental), and the complexity of transactions.
- The auditor’s prior experience and knowledge of the business.
- The quality and effectiveness of the internal control system.

## **HOW AUDITORS OBTAIN EVIDENCE**

Auditors use a range of procedures, each suited to particular audit objectives:

- Inspection of documents or physical assets (e.g., invoices, inventory)
- Observation of processes (e.g., stock counts)
- Inquiries of management or staff
- External confirmation from third parties (e.g., receivables, banks)
- Recalculation and reperformance of procedures (e.g., depreciation)
- Analytical procedures (evaluating relationships and trends)

> **Key Term: audit procedure**
> An action or method performed by the auditor to obtain audit evidence, such as inquiry, inspection, or recalculation.

## **EVALUATION OF SUFFICIENCY AND APPROPRIATENESS**

Simply collecting large amounts of untested or low-value evidence does not satisfy auditing standards. Auditors must continually evaluate whether the combination of evidence gathered is adequate and appropriate for each significant financial statement assertion. If there is doubt about either sufficiency or appropriateness, further procedures must be performed.

### **Worked Example 1.1**

A client’s receivables balance is material to the financial statements. The auditor receives a signed schedule from management listing all outstanding balances but notices several accounts appear long overdue. Management assures the auditor verbally that all debts will be received.

**How should the auditor respond to ensure sufficient appropriate evidence is available?**

> **Answer:**
>
> - The auditor should not rely solely on management’s word—this is insufficient and not appropriate evidence.
> - The auditor should seek more reliable evidence, such as external confirmations from customers and review subsequent cash receipts.
> - Oral assurances from management should be supported by independent documentation and, if necessary, written representations.

### **Worked Example 1.2**

An auditor inspects purchase invoices to verify a sample of inventory items at year end. All invoices are proper and match the recorded inventory.

_Is this evidence, by itself, sufficient and appropriate for the existence of inventory?_

> **Answer:**
>
> - While purchase invoices are reliable for verifying cost, they are not enough to confirm the existence of physical inventory at year end.
> - The auditor should also perform physical inspection (attend inventory count) to gather direct evidence about existence.

### **Exam Warning**

> Relying excessively on internal documents or management explanations, without considering reliability and relevance, is a common mistake. Always seek to corroborate information with independent or direct evidence where possible.

## **Summary**

Audit evidence underpins the entire audit opinion. The auditor must obtain enough (sufficient) and good-quality (appropriate) evidence to support objective conclusions about the financial statements. Material, high-risk, or judgemental areas demand careful selection and scrutiny of audit procedures and sources of evidence. Merely collecting volume does not make evidence sufficient; quality and relevance are equally critical.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- The central role of audit evidence in forming an audit opinion
- The definitions and importance of sufficient appropriate audit evidence
- The distinction between sufficiency (quantity) and appropriateness (quality)
- Factors affecting the amount and reliability of evidence required
- The importance of relevance and reliability for appropriateness
- Typical sources and methods used to gather audit evidence
- The need for ongoing evaluation of whether evidence is adequate

## **Key Terms and Concepts**

- audit evidence
- sufficient appropriate audit evidence
- relevance
- reliability
- audit procedure

Audit evidence - Importance including sufficient appropriate evidence