Which accounting concept states that an accounting transactions should be supported by sufficient evidence to allow individuals to arrive at a similar conclusion?

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Principle

The audit team aims to obtain sufficient, relevant and reliable audit evidence to ensure that the contents of the audit report stand up to critical review. When providing an audit opinion as in Statement of Assurance, the evidence should allow reaching a conclusion with reasonable assurance.

Definitions

Audit evidence is all of the information used by the auditor to support the audit findings and conclusions and, where required, arrive at an audit opinion. Information is data collected from documents, databases or other sources and analysed by the auditors.

Sufficiency

Sufficiency relates to the quantity of audit evidence - auditors should collect enough evidence to enable them to substantiate their conclusions in relation to the audit objective. Audit evidence is sufficient if there is enough of it to persuade a reasonable person that the audit findings and conclusions are valid, and that the recommendations are appropriate. Auditors typically do not examine all data available. This would be impractical, prohibitively costly and unnecessary, as conclusions and opinions can generally be reached by using sampling and other means of selecting items for testing. There is no formula to express in absolute terms how much evidence there must be for it to be considered sufficient. However, the quantity needed is affected by the degree of risk and the quality of such audit evidence - the higher the quality, the less evidence may be required.

Reliability

Audit evidence is reliable if it fulfils the necessary requirements for credibility, if the same findings arise when tests are carried out repeatedly or when information is obtained from different sources. The reliability of audit evidence is affected by its source and type and is dependent on the circumstances under which it is obtained. While recognising that exceptions may exist, audit evidence is considered more reliable when it is:

• provided by original documents rather than photocopies or faxes
• in documentary form, whether paper, electronic, or another medium, rather than verbal statements. However, correspondence, memos and reports may be incomplete, ambiguous or even incorrect, whilst interviews can provide an in-depth understanding not only of facts, but also of constraints and the environment. Nevertheless, evidence collected from interviews needs to be corroborated from other sources;
• obtained directly by the auditor (e.g. observation of the application of a control, computation) rather than indirectly (e.g. enquiry about the application of a control);
• obtained from independent sources outside the entity (e.g. confirmation received from a third party), as opposed to being generated within the auditee organisation or if the third-party is related to the auditee organisation;
• subject to effective related controls if internally generated, because strong internal controls within the auditee organisation can improve the quality of information obtained. Testing the auditee's internal controls over information, including

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  and

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  controls over computer-processed data can help in evaluating accuracy and completeness (

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  ) of such information.

Sources of evidence

Audit evidence may emanate from the following sources:

Types of evidence

Audit evidence may be physical, documentary, oral or analytical.

Corroboration

Different sources should be employed when collecting evidence to make it more persuasive. Audit evidence provides a higher degree of confidence when items of evidence from different sources or of a different nature are consistent with one another. This is known as corroboration or triangulation. In addition, obtaining audit evidence from different sources or of a different nature may indicate that an individual item of audit evidence is not reliable. Conversely, when audit evidence obtained from one source is inconsistent with that obtained from another, the audit team shoulddetermine what additional audit procedures are necessary to resolve the inconsistency and thus allow the information to be used as audit evidence.

Relevancy

For evidence to be relevant, it should help to answer the audit

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Instructions

Audit considerations

There are no precise guidelines to measure the degree of proof required. When evaluating audit evidence for sufficiency, reliability and relevancy, the auditor uses professional judgement and exercises professional scepticism. These qualities are interrelated and must be considered together with the objective and context of the audit and nature of the audit finding:

• High-quality evidence can lead to a reduction in the need for a large quantity of evidence; a large quantity of evidence can sometimes, but not always, be persuasive, even though individual pieces of evidence are not of high quality. However, merely obtaining more evidence does not compensate for its poor quality.
• The higher the combined level of inherent and control risks, the more persuasive evidence the audit team needs to obtain directly, e.g. through tests of details in financial and compliance audits. Similarly, the greater risk of making incorrect findings, reaching invalid conclusions, legal action, controversy or surprise from reporting an audit finding, the higher the standard of evidence needed.
• While the audit team can obtain some audit evidence by testing the database records (e.g. by computation or analysis), this alone is not persuasive enough as evidence on which to base an audit conclusion about the characteristics of the underlying transactions, and other procedures should also be used, e.g. inspection, observation, enquiry and confirmation.
• The higher the level of materiality in monetary terms or the significance of the audit finding, the higher the standard of evidence required.
• The auditor should balance the persuasiveness of evidence against the cost of obtaining it. At some point, the cost of obtaining more evidence will outweigh the improved persuasiveness of the total body of evidence.
• The auditor should consider the purpose for which the evidence will be used. A higher standard is required for evidence supporting

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  than for background information provided in the audit report.
• In performance audits, important facts are often not of an individual nature, but rather comprise several interrelated facts. The strength of the combined facts may be as important, or even more so, than the strength of the individual facts.
• Useful information may not always be documented, thus also necessitating the use of other approaches than documentary review.
• Whilst the physical evidence is usually the most persuasive, the auditors must be aware that their presence may distort what would normally occur, thus reducing the quality of the evidence.
• Oral evidence maybe important, as information obtained in this manner is up-to-date and may not be available elsewhere. However, information should be corroborated and statements confirmed if they are being used as evidence. Only on the rarest of occasions will the auditor accept information obtained in interviews to be reliable in its own right.

Detailed assessments of information needs should be carried out at both the audit planning and examination phases so that the auditors are not swamped by excessive data. Evidence is obtained at the audit examination phase by carrying out a mixture of

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Access and procedures

The ECA has right of access to "any document or information necessary to carry out its task" (

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