Audit evidence and financial statement assertions

Turn the audit plan into an evidence argument

Performing the audit means carrying out procedures that answer the risks identified during planning, then reconsidering the plan when results change the picture. Evidence gathering begins before fieldwork and continues through completion. Knowledge gained during acceptance, risk assessment and earlier testing helps the auditor interpret later findings.

An effective audit file explains a chain of reasoning: what could be materially wrong, which assertion this threatens, what evidence would resolve the concern and how the results support the conclusion. A completed checklist without that connection is weak reasoning. The engagement partner directs and reviews the work; assigning procedures to staff or specialists does not remove responsibility for the engagement's quality.

These lessons use the supplied guide's 2024 study context. The linked historical Australian standards support that context and contain the corresponding ISA principles; Australian additions are identified in those standards.

Concept sources: ASA 330, December 2021, paragraphs 6–7 and 25–28 — procedures and conclusions; ASA 220, December 2023, paragraphs 29–32 — partner supervision and review.

Judge quantity and quality together

Sufficiency concerns how much evidence is needed. Appropriateness concerns whether evidence is relevant and reliable. Higher assessed risk normally calls for more persuasive evidence: stronger sources, better corroboration, broader coverage or a combination. A large quantity of poor evidence does not repair a procedure that answers the wrong question.

Relevance is a logical connection to the audit objective. A building inspection may establish that a structure exists; it does not establish that the entity owns the building or that its carrying amount is recoverable. Each conclusion must stay within the evidence's actual reach.

Reliability depends on the source, form and circumstances. Independent external evidence generally carries more weight than unsupported internal information. Directly obtained evidence is generally stronger than information relayed through management. Internal records become more persuasive when the controls over their preparation and maintenance work effectively. Documentary and original evidence generally provides a stronger basis than recollection or unverified copies, but these are generalisations rather than an inflexible ranking.

For electronic records, consider how they were created, changed, retained and extracted. A polished report can still exclude a location or apply an incorrect date filter. Assess accuracy, completeness and the precision needed for the procedure. When management uses an expert, also consider that person's competence, capabilities and objectivity, understand the work, and assess its suitability for the assertion.

Concept sources: ASA 500, December 2022, paragraphs 6–11, A8–A9 and A35 — evidence quality, entity-produced information and reliability.

Use assertions to define the question

Management's assertions are claims embedded in the financial statements. They cover numbers, descriptions and disclosures. Auditors translate those claims into specific potential misstatements instead of treating a balance as one undifferentiated risk.

Concept sources: ASA 315, December 2023, A188–A191 — assertion categories; the question-based comparison is an original study aid.

The overlap between assertions matters. An omitted equipment purchase can affect asset completeness, liability completeness and expense classification. A correctly recorded purchase may still create a valuation issue if the equipment is damaged. Identify the particular failure in the facts before listing procedures.

Direction of testing also matters. Starting with recorded items and locating supporting evidence often addresses overstatement. Starting with an independent source population and tracing into the records often addresses omission. Neither direction guarantees coverage: the starting population and supporting evidence must be suitable for the stated risk.

Classify a procedure by its purpose

Tests of controls ask whether a control operated effectively to prevent, or detect and correct, material misstatement. They support the planned assessment of control risk. Substantive procedures seek evidence about misstatement in transactions, balances or disclosures and help reduce detection risk. Substantive work includes tests of details and substantive analytical procedures.

The technique alone does not determine the category. Inspection can serve either control testing or substantive work. A dual-purpose procedure can serve both, provided each objective, selection basis and result is evaluated separately. Effective controls do not remove the requirement for substantive procedures over each material class of transactions, balance and disclosure.

Concept sources: ASA 330, paragraphs 4 and 18, A23 — distinct purposes, dual-purpose testing and the substantive requirement.

Match the technique to the evidence gap

Inspection examines records, documents or tangible assets. Observation watches a process, but provides evidence primarily at the time observed and may affect how people behave. Enquiry develops understanding and identifies issues; it ordinarily needs corroboration. External confirmation obtains a direct third-party response. Recalculation checks arithmetic, while reperformance independently executes a process or control. Analytical procedures examine plausible relationships and investigate inconsistent results.

Use combinations when one technique leaves a gap. An explanation of an unusual adjustment may guide the investigation; inspecting approval evidence and examining the underlying calculation may then test different aspects. Software can deliver these techniques more efficiently, but it does not change their evidential purpose.

Finally, weigh contradictory information as well as support. Evidence may include information about suspected non-compliance, inconsistencies between sources, or missing information. Resolve reliability concerns through modified or additional procedures. If the evidence remains insufficient, record that limitation and consider the consequences for the audit rather than assuming the assertion is satisfied.

Sources and further reading

• ASA 500, December 2022 — Audit Evidence: requirements 6–11; evidence techniques A18–A29; relevance A31–A34.
• ASA 315, December 2023 — Identifying and Assessing the Risks of Material Misstatement: assertions A188–A191.
• ASA 330, December 2021 — The Auditor's Responses to Assessed Risks: procedure design, substantive requirements and evaluation.
• ASA 220, December 2023 — Quality Management for an Audit of a Financial Report and Other Historical Financial Information: partner supervision and review.