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Audit evidence is the foundation of every audit opinion—without sufficient, appropriate evidence, you can't conclude whether financial statements are fairly presented. The CPA exam tests your understanding of evidence reliability, sufficiency, and appropriateness, not just your ability to list evidence types. You'll need to know which evidence is most persuasive for specific assertions (existence, completeness, valuation) and when to use each type strategically.
Think of audit evidence as existing on a spectrum of reliability. Evidence you generate yourself is stronger than evidence the client hands you; evidence from independent third parties beats internal documents. When you're answering MCQs or tackling simulations, don't just memorize the ten evidence types—know what makes each one reliable, which assertions each one addresses best, and how auditors combine multiple types to build a persuasive case.
These evidence types involve the auditor directly examining or confirming the existence and condition of items. They're considered highly reliable because they minimize client manipulation and provide firsthand verification.
Compare: Physical Examination vs. Observation—both involve the auditor being physically present, but physical examination tests assets while observation tests processes. If an MCQ asks about verifying inventory existence, physical examination is your answer; if it asks about internal controls over inventory counting, observation applies.
These methods involve examining client records or analyzing financial relationships. Reliability varies based on document source and the rigor of the auditor's analysis.
Compare: Documentation vs. Analytical Procedures—documentation tests individual transactions while analytical procedures test aggregate reasonableness. Use documentation to verify a specific sale occurred; use analytics to assess whether total revenue makes sense given industry trends and capacity.
These evidence types require the auditor to independently execute calculations or procedures. They're highly reliable because the auditor controls the process entirely.
Compare: Recalculation vs. Reperformance—recalculation only checks math, while reperformance re-executes entire procedures including judgments and matching. Both are auditor-generated and highly reliable, but reperformance provides broader evidence about process effectiveness.
Inquiry alone is generally insufficient—these evidence types require corroboration to be persuasive. Understanding their limitations is frequently tested.
Compare: Inquiries vs. External Sources—both involve gathering information from others, but inquiries come from inside the client (lower reliability) while external sources come from independent parties (higher reliability). If an MCQ asks which evidence alone is insufficient, inquiry is almost always the answer.
Modern auditing increasingly relies on technology to gather and analyze evidence efficiently. CAATs transform how auditors test large, complex datasets.
Compare: CAATs vs. Traditional Sampling—CAATs can test entire populations while traditional methods rely on samples. For large datasets with electronic records, CAATs provide more comprehensive evidence; for smaller populations or paper-based systems, traditional methods may be more practical.
| Concept | Best Examples |
|---|---|
| Existence assertion | Physical examination, Confirmation, Observation |
| Completeness assertion | Analytical procedures, Documentation (cutoff testing) |
| Valuation/Accuracy assertion | Recalculation, Analytical procedures, External sources |
| Rights and obligations | Documentation, Confirmation |
| Testing controls | Observation, Reperformance, Inquiry |
| Highest reliability (auditor-generated) | Physical examination, Recalculation, Reperformance |
| External third-party evidence | Confirmation, External sources |
| Requires corroboration | Inquiries of the client |
Which two evidence types both involve the auditor being physically present at the client site, and what distinguishes when you'd use each one?
An auditor wants to test whether the accounts receivable balance is accurate and collectible. Which evidence types would be most appropriate, and why is inquiry alone insufficient?
Compare recalculation and reperformance: If you're testing whether the client correctly applied the three-way match for purchases, which would you use and why?
Rank the following from most to least reliable: client-prepared sales invoice, bank confirmation, management inquiry response, auditor's physical count of inventory. What principle explains your ranking?
A simulation asks you to design substantive procedures for a client with 500,000 sales transactions annually. How would CAATs change your approach compared to traditional sampling, and what specific tests might you perform?