Sufficient appropriate audit evidence

Definition

Sufficient appropriate audit evidence refers to the quantity and quality of evidence collected during an audit to support the auditor's conclusions and opinions. This concept highlights the need for auditors to gather enough evidence that is relevant and reliable to form a solid basis for their judgments, ultimately influencing the audit opinion rendered on the financial statements.

5 Must Know Facts For Your Next Test

1. Sufficient evidence is measured both qualitatively and quantitatively, meaning auditors need enough pieces of evidence that are also trustworthy.
2. Appropriate evidence must be relevant to the audit objectives and gathered from reliable sources to ensure its credibility.
3. The level of assurance required affects how much and what type of evidence needs to be collected; higher risk areas require more extensive evidence.
4. Auditors often use a combination of test methods, such as inspection, observation, inquiry, and analytical procedures, to gather sufficient appropriate evidence.
5. Professional judgment plays a critical role in determining what constitutes sufficient appropriate audit evidence in various circumstances.

Review Questions

• How does the concept of sufficient appropriate audit evidence influence an auditor's assessment of audit risk?
  • Sufficient appropriate audit evidence directly impacts an auditor's assessment of audit risk because it helps auditors determine whether the financial statements are free from material misstatement. If there is a lack of sufficient evidence, the auditor may conclude that there is a higher level of risk associated with the financial statements. This understanding leads auditors to design their procedures more effectively, focusing on areas where they feel more evidence is required to mitigate potential risks.
• In what ways do professional skepticism and judgment affect the determination of sufficient appropriate audit evidence during an audit?
  • Professional skepticism encourages auditors to critically evaluate the evidence gathered and question its sufficiency and appropriateness. Auditors must use their judgment in assessing whether the evidence collected adequately supports their conclusions. This means they must consider various factors such as the reliability of sources, relevance to specific assertions, and whether additional evidence might be necessary to reduce risk levels adequately.
• Evaluate how differing types of audits (like internal vs. external) might influence the standards for sufficient appropriate audit evidence.
  • Different types of audits can significantly influence what is considered sufficient appropriate audit evidence due to varying objectives and stakeholder expectations. For instance, external audits aim to provide assurance to third parties about financial statement accuracy, requiring more extensive corroborative evidence compared to internal audits, which focus on compliance and operational efficiency. As a result, external auditors may need more rigorous evidence-gathering processes and techniques, while internal auditors might rely more on organizational knowledge and internal controls when determining sufficiency.

Related terms

Audit Risk: The risk that an auditor may issue an inappropriate opinion on financial statements that are materially misstated.

Internal Control: Processes and procedures put in place by management to ensure the integrity of financial and accounting information, promote accountability, and prevent fraud.

Sampling Risk: The risk that the auditor's conclusion based on a sample may be different from the conclusion if the entire population were tested.