The auditor’s opinion can be challenged, and the auditor must be able to defend it. What defends it is evidence. This topic covers what counts as audit evidence, how much is enough, how reliable it is, the seven procedures for getting it, the assertions it must address, directional testing, audit sampling and analytical procedures.
It is one of the most examined topics. In the November 2025 diet the principles for judging the reliability of evidence were worth 10 marks, and in May 2026 the main procedures for gathering evidence, with examples, were worth 6. Learn the lists, and learn to give an example from the scenario for every item.
In 30 seconds
Audit evidence is any information the auditor uses to reach the opinion, and it comes from tests of controls and tests of detail (substantive procedures). International Standard on Auditing (ISA) 500 requires sufficient appropriate evidence. Sufficient is quantity. Appropriate is quality, meaning relevance and reliability.
Evidence is more reliable when it comes from independent outside sources, when controls over internal records are effective, when the auditor obtains it directly, when it is documentary, and when it is original. The seven procedures are inspection, observation, inquiry, external confirmation, recalculation, reperformance and analytical procedures.
The evidence must address the assertions: for transactions, occurrence, completeness, accuracy, cut-off, classification and presentation; for balances, existence, rights and obligations, completeness, accuracy, valuation and allocation, classification and presentation. Directional testing tests debits for overstatement and credits for understatement. Sampling under ISA 530 gives a basis for a conclusion on the whole population, and the sample must be representative.
Analytical procedures are used at planning, as substantive tests and at final review, and unexpected results need corroborated explanations.
What audit evidence is
The outcome of an audit is a report, usually with an opinion. If the report is challenged, the auditor must be able to justify it. So the auditor collects evidence on which to base it.
Audit evidence is any information used by the auditor to arrive at the opinion on which the report is based. It includes information in the accounting records and other information.
The auditor creates evidence by carrying out audit tests. These are:
- tests of controls; and
- tests of detail, which are tests of transactions and balances.
It is unlikely that the tests will be applied to every transaction of the period, so evidence is usually drawn from a sample. Analytical procedures are also carried out, usually not on a sample basis. Analytical procedures together with tests of detail are called substantive procedures. The tests, the evidence and the conclusions must be documented on the audit file.
ISA 500: sufficient appropriate audit evidence
ISA 500 sets the auditor’s objective: to design and perform audit procedures that give sufficient appropriate audit evidence, so that the auditor can draw reasonable conclusions on which to base the opinion. The auditor must also:
- consider the relevance and reliability of the information to be used as evidence;
- where information was prepared using the work of management’s expert, evaluate the expert’s competence, capabilities and objectivity, understand the work and judge whether the report is appropriate evidence (see the topic on written representations and experts);
- where using information produced by the entity, evaluate whether it is sufficiently reliable, meaning accurate, complete, precise and detailed;
- use effective means of selecting items for testing; and
- if evidence from one source is inconsistent with that from another, or the auditor doubts its reliability, decide what further procedures are needed and what effect this has on other parts of the audit.
Sufficient and appropriate
Sufficient relates to the quantity of evidence. Appropriate relates to its quality, which means its relevance and reliability. The auditor uses judgement on both. The two are linked. A smaller quantity of high-quality evidence may support a conclusion, while a larger quantity of weaker evidence may be needed in other cases.
Factors that influence how much evidence is sufficient include:
- the materiality of the item being tested;
- the financial position of the client;
- the condition of the accounting and internal control system;
- how persuasive the evidence is;
- the population of the item; and
- the level of audit risk.
The reliability of audit evidence
ISA 500 gives principles that help the auditor judge how reliable evidence is. The syllabus gives four.
- Source. Evidence is more reliable when it comes from independent sources outside the entity. Internal evidence is more reliable when the related controls are effective.
- Directness. Evidence obtained directly by the auditor is more reliable than evidence obtained indirectly or by inference. Observing a control is more reliable than asking about it.
- Form. Evidence in documentary form, on paper or electronic, is more reliable than oral evidence. A written record of a meeting made at the time is better than a later oral account.
- Originals. Original documents are more reliable than photocopies or films, because reliability of copies depends on the controls over their preparation.
Background: The November 2025 model solution lists further points that you can add to score 10 marks: consistency (evidence from different sources that points the same way is more reliable); expertise (information from an objective, qualified expert is more reliable than management’s alone); timeliness (evidence close to the year end, such as a count on the reporting date, is better); cost against benefit (persuasiveness is weighed against cost, but difficulty or expense is not a valid reason to skip a necessary procedure); professional judgement; and professional scepticism (a questioning mind that is alert to contradictory information).
Procedures for obtaining evidence
There are seven main procedures. More than one may be used in an area, and not all suit every objective, so the auditor picks the most suitable.
| Procedure | What it is | Example |
|---|---|---|
| Inspection | Looking at an item: tangible assets, entries in accounting records, documents | Examining a delivery van for existence, or an invoice for the amount |
| Observation | Watching a procedure. Limited to the time of observation, and staff may behave differently when watched | Watching an inventory count or the distribution of wages |
| Inquiry | Seeking information from knowledgeable people inside or outside the entity, evaluating the answers and corroborating them | Asking the credit controller how doubtful debts are identified, then checking against ageing |
| External confirmation | A specific type of inquiry: written evidence direct from a third party (ISA 505) | A bank confirmation of balances and loans, or a request to customers to confirm what they owe |
| Recalculation | Checking the mathematical accuracy of documents or records | Adding the list of year-end receivables |
| Reperformance | Independently carrying out procedures or controls that the client originally performed | Reperforming the ageing of year-end receivables |
| Analytical procedures | Evaluating financial and non-financial data for plausible relationships and investigating unexpected fluctuations | Comparing this year’s gross profit percentage with last year’s |
The financial statement assertions
Modern auditing sees the financial statements as a set of assertions, or representations, by management. The auditor generates evidence to reach a conclusion on each assertion. ISA 315 sets them out in two groups.
| Classes of transactions and events (income statement) | Account balances (statement of financial position) |
|---|---|
| Occurrence: recorded transactions happened and relate to the entity | Existence: assets, liabilities and equity exist |
| Completeness: everything that should be recorded is recorded | Rights and obligations: the entity holds rights to assets, and liabilities are its own |
| Accuracy: amounts and data are recorded appropriately | Completeness: all assets, liabilities and equity that should be recorded are recorded |
| Cut-off: recorded in the correct period | Accuracy, valuation and allocation: included at appropriate amounts, with adjustments properly recorded |
| Classification: recorded in the proper accounts | Classification: recorded in the proper accounts |
| Presentation: appropriately aggregated and clearly described, with relevant disclosures | Presentation: appropriately aggregated and clearly described, with relevant disclosures |
Each assertion for each item being audited is covered by evidence. Receivables, for example, raise existence, valuation, and rights and obligations, while revenue raises occurrence, completeness and cut-off.
Directional testing
Directional testing is an approach developed in the 1980s to give an audit a framework. It rests on double entry. For every debit there is a credit, so if the trial balance balances but one balance is wrong, another must be wrong too.
If non-current assets are overstated by ₦2 million and the trial balance still balances, another asset may be understated, liabilities may be overstated, income may be overstated, expenses may be understated, or a combination of these has occurred.
So the rule is:
- test debits (assets and expenses) directly for overstatement. This tests credits indirectly for overstatement; and
- test credits (liabilities and income) directly for understatement. This tests debits indirectly for understatement.
The reasons are that assets are more likely to be overstated and liabilities understated, and that fraud often overstates an asset or expense. Theft of cash may be hidden by writing it off: credit cash, debit expense.
| Test for | Direction of testing | Assertion | Example |
|---|---|---|---|
| Overstatement of debits | From the financial statements back to the source | Existence | Trace purchases to signed goods received notes; confirm receivables with customers |
| Understatement of credits | From the source forward to the financial statements | Completeness (and accuracy) | Trace signed despatch notes to sales; for payables, start from goods received notes, not from the payables list |
To test payables for completeness, the payables list itself is no use as a starting point, because it may be incomplete. The auditor may write to regular suppliers, based on purchases in the year, and ask them to confirm what is owed, including suppliers not on the list. This is testing the reciprocal population.
Audit sampling: ISA 530
Audit sampling is applying procedures to less than 100% of a population so that every unit has a chance of selection. The objective is to give the auditor a reasonable basis for a conclusion on the population. The auditor is not interested in the sample for its own sake.
There is always a risk that the conclusion from the sample differs from the conclusion from the whole population. This is sampling risk. To reduce it, and so reduce detection risk, the sample must be representative.
Designing a sample
ISA 530 requires the auditor to:
- consider the purpose of the procedure and the population;
- decide a sample size large enough to reduce sampling risk to an acceptably low level; and
- select items so that each sampling unit has a chance of selection.
Key decisions are the sampling approach, the population, the selection method, what counts as a misstatement or deviation, the tolerable misstatement or deviation rate, and the expected misstatement or deviation rate, all of which affect sample size. Expected levels come from experience in earlier audits and related areas. The results, projected to the population for tests of detail, are compared with the tolerable level.
Statistical and non-statistical sampling
- Statistical sampling involves random selection and uses probability theory to evaluate results and measure sampling risk.
- Non-statistical (judgemental) sampling is any technique not based on probability theory. The auditor judges the result.
Selection methods
| Method | How it works |
|---|---|
| Random | Every item has an equal chance of selection, usually by random numbers |
| Systematic | A random start, then every nth item. For a 10% sample, choose one of the first ten at random and take every tenth item after it |
| Haphazard | Items chosen arbitrarily. Not scientifically valid, may be biased, and is not recommended with statistical techniques |
The population is the entire set of data from which the sample is drawn and about which the auditor wants to conclude. It must be appropriate to the objective and complete. Each item is a sampling unit, and the units should be homogeneous.
Tolerable misstatement is a monetary amount set to deal with the risk that individually immaterial misstatements add up to a material one. It applies performance materiality to a particular sample. The tolerable rate of deviation is the rate of deviation from prescribed control procedures that the auditor will accept and still conclude that the statements are materially correct.
Background: Another statistical method is monetary unit sampling, where each naira in the balance is a unit, so larger items are more likely to be selected. It suits tests for overstatement. Misstatements found in a sample must be projected to the population and evaluated, and the auditor considers their nature and cause as well as their size.
Analytical procedures: ISA 520
Two points matter. The evidence is supplementary to other procedures, and the aim is to judge whether the reported figures make sense in the light of known facts. Anomalies need investigating.
ISA 520 describes analytical procedures as evaluations of financial information through analysis of plausible relationships among financial and non-financial data. The figures are compared with benchmarks:
- prior periods;
- budgets and forecasts;
- predictive estimates, such as the expected depreciation charge; and
- more rarely, industry averages.
Typical relationships are items expected to follow a pattern, such as gross profit margins, and financial against non-financial data, such as payroll cost per employee.
Three stages
- They must be used in planning, to set the nature, timing and extent of other procedures.
- They may be used as substantive procedures when more effective or efficient than detailed tests.
- They must be used at the overall review, to conclude whether the statements as a whole fit the auditor’s knowledge of the business.
The auditor must do more than calculate ratios and record trends. The auditor must investigate departures from expectation and corroborate explanations.
The extent of use
ISA 520 requires the auditor to:
- decide how suitable an analytical procedure is for a given assertion. Procedures suit predictable relationships, such as sales commission against revenue, and less so administration costs against revenue;
- develop an expectation precise enough to identify a misstatement, which depends on how accurately amounts can be predicted, how far the data can be broken down, and what information is available;
- evaluate the reliability of the data behind the expectation: its source, comparability, relevance, and the controls over its preparation. A budget prepared as a goal and not an expectation may be unsuitable; and
- decide how big a difference from expectation is acceptable without further investigation, which links to materiality.
Investigating fluctuations
When ratios or trends differ from expectation, the auditor discusses them with client staff, preferably several, and must not accept explanations at face value. They are corroborated by other evidence or by the auditor’s knowledge of the client and industry. If relationships are inconsistent with other information, or the difference is unacceptable, ISA 520 requires inquiries of management, verification of their answers and other procedures as needed.
Example. The gross profit percentage is 25% this year against 20% last year, and the auditor expected no change. The finance director says purchase prices fell. The auditor should not accept this without evidence, because the alternative is that closing inventory has been overstated to raise profit. Checking purchase prices will either confirm the explanation or leave a suspicion to pursue.
The rules in more depth
Why quantity and quality trade off
Ten bank confirmations are worth more than a hundred internal schedules prepared by the person being checked. Strong evidence reduces how much is needed. Weak evidence needs more support. The auditor cannot make up for poor quality only with a larger sample.
Why observation and inquiry are weak alone
Observation covers one moment, and people behave differently when watched. Inquiry gives answers that may be biased. Both need corroboration, which is why the auditor combines procedures.
Why the direction of the test matters
If you start from the ledger and trace backwards to documents, you can only find items that were recorded, so you test existence. If you start from the documents and trace forwards to the ledger, you find items that were missed, so you test completeness. Starting from the wrong end gives no assurance on the assertion you want.
Why a sample must be representative
The conclusion is about the population. A sample that is not representative may suggest the population is fine when it is not. Random and systematic selection give every unit a chance. Haphazard selection can be biased by the auditor’s own preferences.
Why explanations must be corroborated
Management has an interest in the answer. An unexplained change that is simply accepted could hide a misstatement or a fraud. The auditor treats the explanation as a lead to test.
Worked example: designing tests for receivables and payables
Scenario. The auditor of Alaba Wholesale Ltd is planning tests on trade receivables of ₦240 million and trade payables of ₦150 million. The gross profit margin has risen from 18% to 24% while sales are flat. Required: for each of receivables and payables, say which assertion and direction of test to use and give procedures, and explain what to do about the margin.
- Receivables: existence and overstatement. Start from the receivables list and test for overstatement, since receivables are a debit balance. Send confirmations to a sample of customers (external confirmation, direct and independent). Trace samples back through the ledger and day book to the invoice. Recalculate the list total.
- Receivables: valuation. Reperform the ageing, inspect cash received after the year end and inquire about slow payers, corroborating answers with the ageing.
- Payables: completeness and understatement. Do not start from the payables list. Take a sample of goods received notes near the year end and trace them to purchase invoices, the payables day book and the ledger. Write to regular suppliers, including those not on the list, based on the year’s purchases.
- The margin. A rise of six points with flat sales is an unexpected fluctuation. Do not accept the finance director’s first explanation. Corroborate it with purchase price evidence, and test for overstated closing inventory, understated purchases and cut-off errors.
- Sampling. Use random or systematic selection, set tolerable misstatement from performance materiality, and project any errors found to the whole population.
Conclusion. Use confirmation for receivables, reverse-direction tests for payables, and a corroborated investigation of the margin.
How to score full marks
- For reliability principles, name the principle and give the reason in a sentence. Ten marks need about ten distinct principles, five named and five explained.
- For procedures, give the procedure and an example taken from the scenario.
- For assertions, say which group they belong to, transactions or balances, and use the correct names.
- For direction, say debits for overstatement and credits for understatement, and which assertion each tests.
- For sampling, state the objective, sampling risk, the three design requirements and the selection methods.
- For analytical procedures, give the three stages and say that explanations must be corroborated.
- Time. Spend time in proportion to marks.
Common mistakes in the exam
- Listing principles of reliability with no explanation.
- Confusing sufficient (quantity) with appropriate (quality).
- Saying that inquiry alone is enough evidence.
- Starting a completeness test from the ledger.
- Using haphazard selection with statistical sampling.
- Accepting management’s explanation of a fluctuation without corroboration.
- Giving only the syllabus’s four reliability points when ten marks are on offer.
Quick revision
- Evidence: sufficient (quantity) and appropriate (relevance and reliability), ISA 500.
- Reliability: independent source, direct, documentary, original, plus consistency, expertise, timeliness, cost against benefit, judgement and scepticism.
- Seven procedures: inspection, observation, inquiry, external confirmation, recalculation, reperformance, analytical.
- Assertions: occurrence, completeness, accuracy, cut-off, classification, presentation; existence, rights and obligations, completeness, valuation, classification, presentation.
- Directional testing: debits for overstatement, credits for understatement.
- Sampling: representative; random, systematic, haphazard; tolerable misstatement; sampling risk.
- Analytical procedures: planning, substantive, overall review. Corroborate explanations.
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Recall check: multiple choice
The real ICAN paper has no multiple-choice section. These questions are for quick recall. The written questions that follow are closer to the exam.
Question 1. In audit evidence, “sufficient” relates to:
- Quality
- Quantity
- Cost
- Timing
Show the answer
B. “Appropriate” relates to relevance and reliability.
Question 2. Which evidence is generally most reliable?
- An oral statement by a manager
- A bank confirmation received directly by the auditor
- A photocopy of an invoice held by the client
- An internal schedule with weak controls
Show the answer
B. It is independent, direct and documentary.
Question 3. Which is NOT one of the seven procedures for gathering evidence?
- Inspection
- Reperformance
- Recalculation
- Estimation by the client
Show the answer
D. The seventh procedure is analytical procedures.
Question 4. Watching staff count inventory is an example of:
- Inspection
- Observation
- Reperformance
- Recalculation
Show the answer
B. It is limited to the time of the count.
Question 5. Which assertion relates to recording transactions in the correct period?
- Occurrence
- Cut-off
- Existence
- Presentation
Show the answer
B. Cut-off is a transaction assertion.
Question 6. Directional testing says debits should be tested for:
- Understatement
- Overstatement
- Both equally
- Neither
Show the answer
B. Credits are tested for understatement.
Question 7. To test payables for completeness, the best starting point is:
- The payables list
- A sample of goods received notes
- The bank statement of last year
- The audit report
Show the answer
B. The list may itself be incomplete.
Question 8. Which sampling method is not scientifically valid and may be biased?
- Random
- Systematic
- Haphazard
- Statistical
Show the answer
C. It is arbitrary selection.
Question 9. Analytical procedures must be used at:
- Planning and overall review
- Only the final review
- Only substantive testing
- Neither stage
Show the answer
A. They may also be used as substantive procedures.
Question 10. Management explains an unexpected fall in the expense ratio. The auditor should:
- Accept it if the finance director is senior
- Corroborate it with other evidence
- Ignore it
- Ask for a new budget
Show the answer
B. Explanations are not accepted at face value.
Written questions
Question 11 (10 marks). Discuss the principles that help the auditor assess the reliability of audit evidence.
Question 12 (20 marks). (a) Describe the seven procedures for gathering audit evidence, with an example of each. (7 marks) (b) Explain the assertions about account balances. (6 marks) (c) Explain directional testing and why it is used. (4 marks) (d) Explain the three stages at which analytical procedures are used. (3 marks)
Question 13 (10 marks). Describe how the auditor of Kemi Foods Ltd would test trade receivables for existence and trade payables for completeness. Explain why the two tests start in different places. (10 marks)
Model answers
Show the model answer to Question 11
Reliability principles (10 marks, ten points at 1). Evidence from independent sources outside the entity is more reliable than evidence from the entity alone, for example bank confirmations. Internally generated evidence is more reliable when the related controls are effective. Evidence obtained directly by the auditor, such as observing inventory, is more reliable than evidence obtained indirectly or by inference. Evidence in documentary form is more reliable than oral evidence.
Original documents are more reliable than copies. Consistent evidence from different sources is more reliable than contradictory evidence. Evidence from an objective qualified expert is more reliable than management’s alone. Timely evidence close to the year end is more reliable. The persuasiveness of evidence is weighed against cost, but difficulty or expense is no reason to omit a necessary procedure.
The amount needed is a matter of professional judgement, and the auditor keeps a questioning mind and is alert to contradictions.
Show the model answer to Question 12
(a) Procedures (7 marks, 1 each). Inspection: examining an asset or document, such as a vehicle or invoice. Observation: watching an inventory count. Inquiry: asking knowledgeable people and corroborating answers. External confirmation: a bank or customer confirming a balance in writing. Recalculation: adding the receivables list. Reperformance: redoing the ageing of receivables. Analytical procedures: comparing gross profit percentages and investigating differences.
(b) Balance assertions (6 marks, 1 each). Existence: the assets, liabilities and equity exist. Rights and obligations: the entity holds rights to assets and the liabilities are its own. Completeness: everything that should be recorded is recorded. Accuracy, valuation and allocation: items are at appropriate amounts. Classification: items are in the proper accounts. Presentation: items are appropriately aggregated and clearly described, with relevant disclosures.
(c) Directional testing (4 marks). Based on double entry, so if one balance is misstated another must be too. (1) Debits are tested directly for overstatement, which tests credits indirectly for overstatement. (1) Credits are tested directly for understatement, which tests debits indirectly for understatement. (1) Used because assets are more likely to be overstated and liabilities understated, and fraud often overstates assets or expenses. (1)
(d) Analytical procedures (3 marks). In planning, to set the nature, timing and extent of other procedures. (1) As substantive procedures, when more effective or efficient than tests of detail. (1) At overall review, to conclude whether the statements are consistent with the auditor’s knowledge of the business. (1)
Show the model answer to Question 13
Receivables: existence (4 marks). Receivables are a debit balance, so test for overstatement, starting from the receivables list and working back to the source. (1) Send confirmations to a sample of customers asking them to confirm what they owe. (1.5) Alternatively trace a sample from the list back through the receivables ledger and day book to the invoice. (1.5)
Payables: completeness (4 marks). Payables are a credit balance, so test for understatement. The payables list cannot be the starting point, because it may be incomplete. (1) Take a sample of goods received notes and trace each through the purchase invoice and day book to the ledger. (1.5) Write to regular suppliers, based on purchases in the year, including those not on the list, asking them to confirm balances. (1.5)
Why the starting points differ (2 marks). Tests for overstatement start with what is recorded and look backwards for support. Tests for understatement start at the source and look forwards for what is missing. (2)
Pathfinder on audit evidence, assertions and sampling
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
In the case of a client with weak controls, you discuss the principles that help the auditor assess the reliability of audit evidence: name five points (5 marks) and discuss them (5 marks). Part (a), on choice of strategy, is covered in the topic on audit strategies.
Revise first: The reliability of audit evidence
For the audit of a bank, you describe the main procedures for gathering audit evidence, with examples.
Revise first: Procedures for obtaining evidence
Section A is a single compulsory case with several requirements. It has drawn on ethics, quality management, group audits and reporting. Practise the scenario method in this topic before you attempt it.
Revise first: How to score full marks
Source: ICAN Pathfinder, Advanced Audit, Assurance and Forensics. Diets covered: May Diet, 2026 and November Diet, 2025.
Spotted a mistake? Tell us and we will check it.
