Sufficient Appropriate Audit Evidence: Quality, Quantity & Professional Skepticism
Overview: An audit opinion must be supported by sufficient appropriate evidence that is both reliable and relevant. This guide explains what counts as sufficient and appropriate, how to apply the GAAS hierarchy of evidence, and how to maintain professional skepticism throughout the audit.
✅ What is Audit Evidence?
Audit evidence includes information in any form — paper, electronic, oral, or observable — that the auditor uses to form a conclusion. It is gathered through risk assessment, tests of controls, substantive procedures, and other activities like client acceptance reviews.
✅ Sufficiency vs. Appropriateness
- Sufficiency: The quantity of evidence. Depends on the assessed risk of material misstatement (RMM) and the quality of the evidence. Higher risk → more evidence needed.
- Appropriateness: The quality of evidence, based on relevance and reliability. High-quality evidence may reduce the quantity needed.
📌 GAAS Reliability Hierarchy
Remember the general order of most to least reliable:
- Auditor’s direct personal knowledge (e.g., physical inspection, observation, recalculation)
- External evidence from independent sources
- Internal evidence generated by the entity
- Oral evidence (least reliable)
✅ Types of Evidence
- Accounting Records: Journal entries, ledgers, invoices, contracts. Must be tested — alone they’re not enough.
- Corroborating Evidence: Confirmations, minutes, industry reports, observation, inspection. Strengthens reliability.
- Electronic Evidence: Consider how long it is retrievable and whether controls ensure its accuracy.
✅ Reliability Considerations
- Evidence is more reliable when obtained directly by the auditor.
- External confirmations sent directly to the auditor are better than those held by the client.
- Effective internal controls can improve the reliability of internally generated evidence.
- Original documents are better than copies or scans.
✅ Relevance Considerations
Evidence must directly relate to the financial statement assertions being tested. For example, AR confirmations support existence, not collectibility.
✅ Contradictory Evidence
Auditors must consider all evidence — whether it supports or contradicts the assertions. Contradictory evidence may require further testing or revised risk assessments.
✅ Auditor Biases to Avoid
Common biases that can affect judgment include:
- Confirmation Bias: Giving more weight to evidence that supports initial conclusions.
- Availability Bias: Relying too heavily on easily recalled info.
- Overconfidence Bias: Overestimating one’s own judgment.
- Anchoring Bias: Sticking too closely to initial info.
- Automation Bias: Over-relying on system-generated data without questioning it.
✅ PCAOB Requirements
PCAOB standards emphasize that auditors must design procedures to test relevant assertions and obtain evidence that is both sufficient and appropriate in light of risk and materiality.
✅ Key Takeaways
- Always use professional judgment and skepticism — persuasive, not conclusive, evidence is the goal.
- Document the nature, extent, and results of procedures clearly.
- Always address contradictory evidence and possible fraud risk factors.
🔗 Helpful References
👉 Trust but verify: get the right evidence, document it well, and stay skeptical!
