ISA 500 380INTERNATIONAL STANDARD ON AUDITING 500 [632198]

ISA 500 380INTERNATIONAL STANDARD ON AUDITING 500
AUDIT EVIDENCE
(Effective for audits of financial statements for periods
beginning on or after December 15, 2009)
CONTENTS
Paragraph
Introduction
Scope of this ISA ……………………………………………………………………………. 1 −2
Effective Da te ………………………………………………………………………………… 3
Objective ………………………………………………………………………………………. 4
Definitions …………………………………………………………………………………….. 5
Requirements
Sufficient Appropriate Audit Eviden ce ………………………………………………. 6
Information to Be Used as Audit Evidence …………………………………………. 7 −9
Selecting Items for Testing to Obtain Audit Evidence ………………………….. 10
Inconsistency in, or Doubts over Re liability of, Audit Evidence ……………. 11
Application and Other Explanatory Material
Sufficient Appropriate Audit Evidence ………………………………………………. A1 −A25
Information to Be Used as Audit Evidence …………………………………………. A26 −A51
Selecting Items for Testing to Obtain Audit Evidence ………………………….. A52 −A56
Inconsistency in, or Doubts over Re liability of, Audit Evidence ……………. A57

International Standard on Auditing (ISA) 500, “Audit Evidence” should be read in
conjunction with ISA 200, “Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance with International Standards on Auditing.”

AUDIT EVIDENCE

ISA 500 381
AUDITING Introduction
Scope of this ISA
1. This International Standard on Aud iting (ISA) explains what constitutes audit
evidence in an audit of financial statements, and deals with the auditor’s responsibility to design and perform audit procedures to obtain sufficient
appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.
2. This ISA is applicable to all the audit evidence obtained during the course of
the audit. Other ISAs deal with specific aspects of the audit (for example, ISA
315
1), the audit evidence to be obtained in relation to a particular topic (for
example, ISA 5702), specific procedures to obtain audit evidence (for example,
ISA 5203), and the evaluation of whether suff icient appropriate audit evidence
has been obtained (ISA 2004 and ISA 3305).
Effective Date
3. This ISA is effective for audits of financial statements for periods beginning on
or after December 15, 2009.
Objective
4. The objective of the auditor is to design and perform audit procedures in such a
way as to enable the auditor to obtain sufficient appropriate audit evidence to
be able to draw reasonable conclusions on which to base the auditor’s opinion.
Definitions
5. For purposes of the ISAs, the following terms have the meanings attributed
below:
(a) Accounting records – The records of initial accounting entries and
supporting records, such as checks and records of electronic fund transfers;
invoices; contracts; the general and su bsidiary ledgers, journal entries and
other adjustments to the financial statem ents that are not reflected in journal
entries; and records such as work sheets and spreadsheets supporting cost allocations, computations, reconciliations and disclosures.

1 ISA 315, “Identifying and Assessing the Risks of Material Misstatement through Understanding the
Entity and Its Environment.”
2 ISA 570, “Going Concern.”
3 ISA 520, “Analytical Procedures.”
4 ISA 200, “Overall Objectives of the Independent Au ditor and the Conduct of an Audit in Accordance
with International Standards on Auditing.”
5 ISA 330, “The Auditor’s Responses to Assessed Risks.”

AUDIT EVIDENCE

ISA 500 382(b) Appropriateness (of audit evidence) – The measure of the quality of
audit evidence; that is, its relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based.
(c) Audit evidence – Information used by the auditor in arriving at the
conclusions on which the auditor’s opinion is based. Audit evidence includes both information cont ained in the accounting records
underlying the financial statements and other information.
(d) Management’s expert – An individual or organization possessing expertise
in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements.
(e) Sufficiency (of audit evidence) – The measure of the quantity of audit
evidence. The quantity of the audit evidence needed is affected by the auditor’s assessment of the risks of material misstatement and also by
the quality of such audit evidence.
Requirements
Sufficient Appropriate Audit Evidence
6. The auditor shall design and perform a udit procedures that are appropriate in
the circumstances for the purpose of obtaining sufficient appropriate audit
evidence. (Ref: Para. A1–A25)
Information to Be Used as Audit Evidence
7. When designing and performing audit procedures, the auditor shall consider the
relevance and reliability of the information to be used as audit evidence. (Ref: Para. A26–A33)
8. If information to be used as audit evidence has been prepared using the work of a
management’s expert, the auditor shall, to the extent necessary, having regard to the significance of that expert’s work for the auditor’s purposes: (Ref: Para. A34–A36)
(a) Evaluate the competence, capabilities and objectivity of that expert; (Ref:
Para. A37–A43)
(b) Obtain an understanding of the work of that expert; and (Ref: Para. A44–
A47)
(c) Evaluate the appropriateness of that expert’s work as audit evidence for the
relevant assertion. (Ref: Para. A48)
9. When using information produced by the entity, the auditor shall evaluate whether
the information is sufficiently reliable for the auditor’s purposes, including, as necessary in the circumstances:
(a) Obtaining audit evidence about the accuracy and completeness of the
information; and (Ref: Para. A49–A50)

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ISA 500 383
AUDITING (b) Evaluating whether the information is sufficiently precise and detailed
for the auditor’s purposes. (Ref: Para. A51)
Selecting Items for Testing to Obtain Audit Evidence
10. When designing tests of controls and tests of details, the auditor shall
determine means of selecting items for testing that are effective in meeting the purpose of the audit procedure. (Ref: Para. A52–A56)
Inconsistency in, or Doubts over Reliability of, Audit Evidence
11. If:
(a) audit evidence obtained from one source is inconsistent with that
obtained from another; or
(b) the auditor has doubts over the reliability of information to be used as
audit evidence,
the auditor shall determine what modifica tions or additions to audit procedures
are necessary to resolve the matter, and sh all consider the eff ect of the matter,
if any, on other aspects of the audit. (Ref: Para. A57)
***
Application and Other Explanatory Material
Sufficient Appropriate Audit Evidence (Ref: Para. 6)
A1. Audit evidence is necessary to suppor t the auditor’s opinion and report. It is
cumulative in nature and is primarily obtained from audit procedures performed during the course of the audit. It may, however, also include information obtained from other sources such as previous audits (provided the auditor has determined whether changes have occurred since the previous audit
that may affect its relevance to the current audit
6) or a firm’s quality control
procedures for client acceptance and con tinuance. In addition to other sources
inside and outside the entity, the entity’s accounting records are an important source of audit evidence. Al so, information that may be used as audit evidence
may have been prepared using the work of a management’s expert. Audit evidence comprises both information that supports and corroborates management’s assertions, and any information that contradicts such assertions. In addition, in some cases the abse nce of information (for example,
management’s refusal to provide a requested representation) is used by the auditor, and therefore, also constitutes audit evidence.

6 ISA 315, paragraph 9.

AUDIT EVIDENCE

ISA 500 384A2. Most of the auditor’s work in forming the auditor’s opinion consists of obtaining
and evaluating audit evidence. Audit procedures to obtain audit evidence can include inspection, observation, confir mation, recalculation, reperformance, and
analytical procedures, often in some combination, in addition to inquiry. Although inquiry may provide important audit evid ence, and may even produce evidence of a
misstatement, inquiry alone ordinarily does not provide sufficient audit evidence of the absence of a material misstatement at the assertion level, nor of the operating
effectiveness of controls.
A3. As explained in ISA 200,
7 reasonable assurance is obtained when the auditor
has obtained sufficient appropriate aud it evidence to reduce audit risk (that is,
the risk that the auditor expresses an inappropriate opinion when the financial
statements are materially misstate d) to an acceptably low level.
A4. The sufficiency and appropriateness of audit evidence are interrelated.
Sufficiency is the measure of the quantity of audit evidence. The quantity of audit evidence needed is affected by th e auditor’s assessment of the risks of
misstatement (the higher the assessed risk s, the more audit evidence is likely to
be required) and also by the quality of such audit evidence (the higher the quality, the less may be required). Obtaining more audit evidence, however, may not compensate for its poor quality.
A5. Appropriateness is the measure of the quality of audit evidence; that is, its
relevance and its reliability in providing support for the conclusions on which the auditor’s opinion is based. The reliability of evidence is influenced by its source and by its nature, and is dependent on the individual circumstances under which it is obtained.
A6. ISA 330 requires the auditor to conclude whether sufficient appropriate audit
evidence has been obtained.
8 Whether sufficient appropriate audit evidence has
been obtained to reduce audit risk to an acceptably low level, and thereby enable the auditor to draw reasonable conclusions on which to base the auditor’s opinion, is a matter of professional judgment. ISA 200 contains discussion of such matters as the nature of audit procedures, the timeliness of financial reporting, and the balance between benefit and cost, which are relevant factors when the auditor exercises professional judgment regarding whether sufficient appropriate aud it evidence has been obtained.
Sources of Audit Evidence

A7. Some audit evidence is obtained by performing audit procedures to test the
accounting records, for exam ple, through analysis and review, reperforming
procedures followed in the financial reporting process, and reconciling related

7 ISA 200, paragraph 5.
8 ISA 330, paragraph 26.

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ISA 500 385
AUDITING types and applications of the same information. Through the performance of
such audit procedures, the auditor may determine that the accounting records are internally consistent and agree to the financial statements.
A8. More assurance is ordinarily obtaine d from consistent audit evidence obtained
from different sources or of a different nature than from items of audit evidence
considered individually. For example, corroborating information obtained from a source independent of the entity may increase the assu rance the auditor obtains
from audit evidence that is generated internally, such as evidence existing within the accounting records, minutes of meetings, or a management representation.
A9. Information from sources independent of the entity that the auditor may use as
audit evidence may include confirmations from third parties, analysts’ reports,
and comparable data about competitors (benchmarking data).
Audit Procedures for Obtaining Audit Evidence
A10. As required by, and explained further in, ISA 315 and ISA 330, audit evidence
to draw reasonable conclusions on which to base the auditor’s opinion is obtained by performing:
(a) Risk assessment procedures; and (b) Further audit procedures, which comprise:
(i) Tests of controls, when required by the ISAs or when the auditor
has chosen to do so; and
(ii) Substantive procedures, including tests of details and substantive
analytical procedures.
A11. The audit procedures described in paragraphs A14–A25 below may be used as
risk assessment procedures, tests of controls or substantive procedures, depending on the context in which they are applied by the auditor. As explained in ISA 330, audit evidence obtained from previous audits may, in certain circumstances, provide appropria te audit evidence where the auditor
performs audit procedures to establish its continuing relevance.
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A12. The nature and timing of the audit procedures to be used may be affected by
the fact that some of the accounting data and other information may be
available only in electronic form or only at certain points or periods in time.
For example, source documents, such as purchase orders and invoices, may
exist only in electronic form when an entity uses electronic commerce, or may be discarded after scanning when an entity uses image processing systems to facilitate storage and reference.

9 ISA 330, paragraph A35.

AUDIT EVIDENCE

ISA 500 386A13. Certain electronic information may not be retrievable after a specified period of
time, for example, if files are changed and if backup files do not exist. Accordingly, the auditor may find it necessary as a result of an entity’s data retention policies to request retention of some information for the auditor’s review or to perform audit
procedures at a time when the information is available.
Inspection
A14. Inspection involves examining records or documents, whether internal or
external, in paper form, electronic form, or other media, or a physical examination of an asset. Inspection of records and documents provides audit evidence of varying degrees of reliability, depending on their nature and source and, in the case of internal records an d documents, on the effectiveness of the
controls over their production. An example of inspection used as a test of controls is inspection of records for evidence of authorization.
A15. Some documents represent direct aud it evidence of the existence of an asset,
for example, a document constituting a financial instrument such as a stock or bond. Inspection of such documents may not necessarily provide audit evidence about ownership or value. In a ddition, inspecting an executed contract
may provide audit evidence relevant to the entity’s application of accounting policies, such as revenue recognition.
A16. Inspection of tangible assets may prov ide reliable audit evidence with respect
to their existence, but not necessarily about the entity’s rights and obligations or the valuation of the assets. Inspection of individual inventory items may accompany the observation of inventory counting.
Observation
A17. Observation consists of looking at a process or procedure being performed by
others, for example, the auditor’s observation of inventory counting by the entity’s personnel, or of the performance of contro l activities. Observation provides audit
evidence about the performance of a process or procedure, but is limited to the point in time at which the observation takes place, and by the fact that the act of being observed may affect how the process or procedure is performed. See ISA 501 for further guidance on observation of the counting of inventory.
10
External Confirmation
A18. An external confirmation represents audit evidence obtained by the auditor as a
direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium. External confirmation procedures frequently are relevant when addressing assertions associated with certain account balances and their elemen ts. However, external confirmations

10 ISA 501, “Audit Evidence—Specific Considerations for Selected Items.”

AUDIT EVIDENCE

ISA 500 387
AUDITING need not be restricted to account balan ces only. For example, the auditor may
request confirmation of the terms of agreements or transactions an entity has with third parties; the confirmation request may be designed to ask if any modifications have been made to the agreement and, if so, what the relevant details are. External confirmation pro cedures also are used to obtain audit
evidence about the absence of certain conditions, for example, the absence of a
“side agreement” that may influence revenue recognition. See ISA 505 for further guidance.
11
Recalculation
A19. Recalculation consists of checking the mathematical accuracy of documents or
records. Recalculation may be perfor med manually or electronically.
Reperformance
A20. Reperformance involves the auditor’s independent execution of procedures or
controls that were originally performed as part of the entity’s internal control.
Analytical Procedures
A21. Analytical procedures consist of evaluations of financial information through
analysis of plausible relationships am ong both financial and non-financial data.
Analytical procedures also encompass su ch investigation as is necessary of
identified fluctuations or relationships that are inconsistent with other relevant information or that differ from expected values by a significant amount. See ISA 520 for further guidance.
Inquiry
A22. Inquiry consists of seeking information of knowledgeable persons, both
financial and non-financial, within the entity or outside the entity. Inquiry is used extensively throughout the audit in addition to other audit procedures. Inquiries may range from formal written inquiries to informal oral inquiries.
Evaluating responses to inquiries is an integral part of the inquiry process.
A23. Responses to inquiries may provide the auditor with information not previously
possessed or with corroborative audit evidence. Alternatively, responses might provide information that differs significantly from other information that the auditor has obtained, for example, information regarding the possibility of management override of controls. In some cases, responses to inquiries provide
a basis for the auditor to modify or perform additional audit procedures.
A24. Although corroboration of evidence obtained through inquiry is often of particular
importance, in the case of inquiries about management intent, the information available to support management’s inte nt may be limited. In these cases,

11 ISA 505, “External Confirmations.”

AUDIT EVIDENCE

ISA 500 388understanding management’s past history of carrying out its stated intentions,
management’s stated reasons for choosing a particular course of action, and management’s ability to pursue a specific course of action may provide relevant information to corroborate the evidence obtained through inquiry.
A25. In respect of some matters, the auditor may consider it necessary to obtain written
representations from management and, where appropriate, those charged with governance to confirm responses to oral inquiries. See ISA 580 for further guidance.
12
Information to Be Used as Audit Evidence
Relevance and Reliability (Ref: Para. 7)
A26. As noted in paragraph A1, while audit evidence is primarily obtained from
audit procedures performed during the course of the audit, it may also include information obtained from other sources such as, for example, previous audits, in certain circumstances, and a firm’s quality control procedures for client acceptance and continuance. The quality of all audit evidence is affected by the
relevance and reliability of the information upon which it is based.
Relevance
A27. Relevance deals with the logical connection with, or bearing upon, the purpose of
the audit procedure and, where appropriate, the assertion under consideration. The relevance of information to be used as audit evidence may be affected by the direction of testing. For example, if the purpose of an audit procedure is to test for overstatement in the existence or valuation of accounts payable, testing the recorded accounts payable may be a relevant audit procedure. On the other hand, when testing for understatement in the existence or valuation of accounts payable, testing the recorded accounts payable would not be relevant, but testing such information as subsequent disbursements, unpaid invoices, suppliers’ statements, and unmatched receiving reports may be relevant.
A28. A given set of audit procedures may provide audit evidence that is relevant to
certain assertions, but not others. For example, inspection of documents related to the collection of receivables after the period end may provide audit evidence
regarding existence and valuation, but not necessarily cutoff. Similarly, obtaining audit evidence regarding a particular assertion, for example, the existence of inventory, is not a substitute for obtaining audit evidence regarding another assertion, for example, the valuation of that inventory. On the other hand, audit evidence from different sources or of a different nature may often
be relevant to the same assertion.

12 ISA 580, “Written Representations.”

AUDIT EVIDENCE

ISA 500 389
AUDITING A29. Tests of controls are designed to evaluate the operating effectiveness of
controls in preventing, or detecting an d correcting, material misstatements at
the assertion level. Designing tests of controls to obtain relevant audit evidence includes identifying conditions (character istics or attributes) that indicate
performance of a control, and deviation conditions which indicate departures from adequate performance. The presen ce or absence of those conditions can
then be tested by the auditor.
A30. Substantive procedures are designed to detect material misstatements at the
assertion level. They comprise tests of de tails and substantive analytical procedures.
Designing substantive procedures includes identifying conditions relevant to the purpose of the test that constitute a misstatement in the relevant assertion.
Reliability
A31. The reliability of information to be us ed as audit evidence, and therefore of the
audit evidence itself, is influenced by its source and its nature, and the circumstances under which it is obtained, including the controls over its preparation and maintenance where relevant. Therefore, generalizations about the reliability of
various kinds of audit evidence are subject to important exceptions. Even when information to be used as audit evidence is obtained from sources external to the
entity, circumstances may exist that coul d affect its reliability. For example,
information obtained from an independent external source may not be reliable if the source is not knowledgeable, or a management’s expert may lack objectivity. While recognizing that exceptions may exist, the following generalizations about the reliability of audit evidence may be useful:
• The reliability of audit evidence is increased when it is obtained from
independent sources outside the entity.
• The reliability of audit evidence that is generated internally is increased
when the related controls, including those over its preparation and maintenance, imposed by the entity are effective.
• Audit evidence obtained directly by the auditor (for example,
observation of the application of a control) is more reliable than audit evidence obtained indirectly or by inference (for example, inquiry about the application of a control).
• Audit evidence in documentary form, whether paper, electronic, or other
medium, is more reliable than evidence obtained orally (for example, a contemporaneously written record of a meeting is more reliable than a subsequent oral representation of the matters discussed).
• Audit evidence provided by original documents is more reliable than
audit evidence provided by photocopies or facsimiles, or documents that have been filmed, digitized or otherwise transformed into electronic

AUDIT EVIDENCE

ISA 500 390form, the reliability of which may depend on the controls over their
preparation and maintenance.
A32. ISA 520 provides further guidance re garding the reliability of data used for
purposes of designing analytical procedures as substantive procedures.13
A33. ISA 240 deals with circumstances wher e the auditor has reason to believe that a
document may not be authentic, or may have been modified without that modification having been disclosed to the auditor.
14
Reliability of Information Produc ed by a Management’s Expert (Ref: Para. 8)
A34. The preparation of an entity’s financial statements may require expertise in a field
other than accounting or auditing, such as actuarial calculations, valuations, or engineering data. The entity may employ or engage experts in these fields to obtain the needed expertise to prepare the financia l statements. Failure to do so when such
expertise is necessary increases the risks of material misstatement.
A35. When information to be used as audit evidence has been prepared using the
work of a management’s expert, the requirement in paragraph 8 of this ISA applies. For example, an individual or organization may possess expertise in the application of models to estimate the fair value of securities for which there is no observable market. If the individual or organization applies that expertise in making an estimate which the entity uses in preparing its financial statements, the individual or organization is a management’s expert and paragraph 8 applies. If, on the other hand, that individual or organization merely provides price data regardin g private transactions not otherwise
available to the entity whic h the entity uses in its own estimation methods, such
information, if used as audit evidence, is subject to paragraph 7 of this ISA, but is not the use of a management’s expert by the entity.
A36. The nature, timing and extent of audit procedures in relation to the requirement
in paragraph 8 of this ISA, may be affected by such matters as:
• The nature and complexity of the matter to which the management’s
expert relates.
• The risks of material misstatement in the matter.
• The availability of alternative sources of audit evidence.
• The nature, scope and objectives of the management’s expert’s work.
• Whether the management’s expert is employed by the entity, or is a
party engaged by it to provide relevant services.

13 ISA 520, paragraph 5(a).
14 ISA 240, “The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements,”
paragraph 13.

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ISA 500 391
AUDITING • The extent to which management can exercise control or influence over
the work of the management’s expert.
• Whether the management’s expert is subject to technical performance
standards or other professional or industry requirements.
• The nature and extent of any controls within the entity over the
management’s expert’s work.
• The auditor’s knowledge and experience of the management’s expert’s
field of expertise.
• The auditor’s previous experience of the work of that expert.
The Competence, Capabilities, and Objectivity of a Management’s Expert (Ref: Para.
8(a))
A37. Competence relates to the nature and level of expertise of the management’s
expert. Capability relates the ability of the management’s expert to exercise that competence in the circumstances. Factors that influence capability may include, for example, geographic location, and the availability of time and resources. Objectivity relates to the possible effects that bias, conflict of interest or the influence of others may have on the professional or business judgment of the management’s expert. The competence, capabilities and objectivity of a management’s expert, and any controls within the entity over that expert’s work, are important factors in relation to the reliability of any information produced by a management’s expert.
A38. Information regarding the competence, capabilities and objectivity of a
management’s expert may come from a variety of sources, such as:
• Personal experience with previous work of that expert.
• Discussions with that expert.
• Discussions with others who are familiar with that expert’s work.
• Knowledge of that expert’s qualifications, membership of a professional
body or industry association, license to practice, or other forms of external recognition.
• Published papers or books written by that expert.
• An auditor’s expert, if any, who assists the auditor in obtaining sufficient
appropriate audit evidence with respect to information produced by the management’s expert.
A39. Matters relevant to evaluating the competence, capabilities and objectivity of a
management’s expert include whether that expert’s work is subject to technical performance standards or other professional or industry requirements, for example, ethical standards and other membership requirements of a professional body or

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ISA 500 392industry association, accreditation standards of a licensing body, or requirements
imposed by law or regulation.
A40. Other matters that may be relevant include:
• The relevance of the management’s expert’s competence to the matter for
which that expert’s work will be used, including any areas of specialty within that expert’s field. For example, a particular actuary may specialize in property and casualty insurance, but have limited expertise regarding pension calculations.
• The management’s expert’s competence with respect to relevant
accounting requirements, for example, knowledge of assumptions and
methods, including models where applicable, that are consistent with the applicable financial reporting framework.
• Whether unexpected events, changes in conditions, or the audit evidence
obtained from the results of audit procedures indicate that it may be necessary to reconsider the initial ev aluation of the co mpetence, capabilities
and objectivity of the management’s expert as the audit progresses.
A41. A broad range of circumstances may threaten objectivity, for example, self-
interest threats, advocacy threats, fami liarity threats, self-review threats and
intimidation threats. Safeguards may reduce such threats, and may be created either by external structures (for example, the management’s expert’s
profession, legislation or regulation), or by the management’s expert’s work environment (for example, quality control policies and procedures).
A42. Although safeguards cannot eliminate all threats to a management’s expert’s
objectivity, threats such as intimidation threats may be of less significance to an expert engaged by the entity than to an expert employed by the entity, and the effectiveness of safeguards such as quality control policies and procedures may be
greater. Because the threat to objectivity created by being an employee of the entity will always be present, an expert empl oyed by the entity cannot ordinarily be
regarded as being more likely to be objective than other employees of the entity.
A43. When evaluating the objectivity of an expert engaged by the entity, it may be
relevant to discuss with management and th at expert any interests and relationships
that may create threats to the expert’s objectivity, and any applicable safeguards, including any professional requirements that apply to the expert; and to evaluate whether the safeguards are adequate. Interests and relationships creating threats may include:
• Financial interests.
• Business and personal relationships.
• Provision of other services.

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ISA 500 393
AUDITING Obtaining an Understanding of the Work of the Management’s Expert (Ref: Para. 8(b))
A44. An understanding of the work of the management’s expert includes an
understanding of the relevant field of expertise. An understanding of the relevant field of expertise may be obtained in conjunction with the auditor’s determination of whether the auditor has the expertise to evaluate the work of the management’s expert, or whether the auditor needs an auditor’s expert for this purpose.
15
A45. Aspects of the management’s expert’s field relevant to the auditor’s
understanding may include:
• Whether that expert’s field has areas of specialty within it that are relevant
to the audit.
• Whether any professional or other standards, and regulatory or legal
requirements apply.
• What assumptions and methods are used by the management’s expert,
and whether they are generally accepte d within that expert’s field and
appropriate for financial reporting purposes.
• The nature of internal and external data or information the management’s
expert uses.
A46. In the case of a management’s expert engaged by the entity, there will ordinarily be
an engagement letter or other written form of agreement between the entity and that
expert. Evaluating that agreement when obtaining an understanding of the work of the management’s expert may assist the auditor in determining the appropriateness of the following for the auditor’s purposes:
• The nature, scope and objectives of that expert’s work;
• The respective roles and responsibilities of management and that expert;
and
• The nature, timing and extent of communication between management
and that expert, including the form of any report to be provided by that expert.
A47. In the case of a management’s expert employed by the entity, it is less likely
there will be a written agreement of this kind. Inquiry of the expert and other
members of management may be the most appropriate way for the auditor to obtain the necessary understanding.

15 ISA 620, “Using the Work of an Auditor’s Expert,” paragraph 7.

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ISA 500 394Evaluating the Appropriateness of the Management’s Expert’s Work (Ref: Para. 8(c))
A48. Considerations when evaluating the a ppropriateness of the management’s expert’s
work as audit evidence for the relevant assertion may include:
• The relevance and reasonableness of that expert’s findings or conclusions,
their consistency with other audit evidence, and whether they have been appropriately reflected in the financial statements;
• If that expert’s work involves use of significant assumptions and methods,
the relevance and reasonableness of those assumptions and methods; and
• If that expert’s work involves signifi cant use of source data, the relevance,
completeness, and accuracy of that source data.
Information Produced by the Entity and Used for the Auditor’s Purposes (Ref: Para.
9(a)–(b))
A49. In order for the auditor to obtain reliable audit evidence, information produced
by the entity that is used for performing audit procedures needs to be sufficiently complete and accurate. For example, the effectiveness of auditing
revenue by applying standard prices to records of sales volume is affected by the accuracy of the price information and the completeness and accuracy of the sales volume data. Similarly, if the auditor intends to test a population (for example, payments) for a certain character istic (for example, authorization), the
results of the test will be less reliabl e if the population from which items are
selected for testing is not complete.
A50. Obtaining audit evidence about th e accuracy and completeness of such
information may be performed concurrently with the actual audit procedure applied to the information when obtaining such audit evidence is an integral
part of the audit procedure itself. In other situations, the auditor may have obtained audit evidence of the accuracy and completeness of such information
by testing controls over the preparation and maintenance of the information. In
some situations, however, the auditor may determine that additional audit procedures are needed.
A51. In some cases, the auditor may intend to use information produced by the entity
for other audit purposes. For example, the auditor may intend to make use of the entity’s performance measur es for the purpose of analytical procedures, or to
make use of the entity’s information produced for monitoring activities, such as internal auditor’s reports. In such cases, the appropriateness of the audit evidence obtained is affected by whether the information is sufficiently precise or detailed for the auditor’s purposes. For exampl e, performance measures used by
management may not be precise enough to detect material misstatements.

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ISA 500 395
AUDITING Selecting Items for Testing to Obtain Audit Evidence (Ref: Para. 10)
A52. An effective test prov ides appropriate au dit evidence to an extent that, taken
with other audit evidence obtained or to be obtained, will be sufficient for the auditor’s purposes. In selecting items for testing, the auditor is required by paragraph 7 to determine the relevance and reliability of information to be used as audit evidence; the other aspect of e ffectiveness (sufficiency) is an important
consideration in selecting items to test. The means available to the auditor for selecting items for testing are:
(a) Selecting all items (100% examination); (b) Selecting specific items; and (c) Audit sampling.
The application of any one or combination of these means may be appropriate
depending on the particular circumstances , for example, the risks of material
misstatement related to the assertion being tested, and the practicality and efficiency of the different means.
Selecting All Items
A53. The auditor may decide that it will be most appropriate to examine the entire
population of items that make up a class of transactions or account balance (or a stratum within that population). 100% examination is unlikely in the case of tests of controls; however, it is more common for tests of details. 100% examination may be appropriate when, for example:
• The population constitutes a small number of large value items;
• There is a significant risk and other means do not provide sufficient
appropriate audit evidence; or
• The repetitive nature of a calculation or other process performed
automatically by an information system makes a 100% examination cost effective.
Selecting Specific Items
A54. The auditor may decide to select specific items from a population. In making this
decision, factors that may be relevant include the auditor’s understanding of the entity, the assessed risks of material mi sstatement, and the characteristics of the
population being tested. The judgmental selection of specific items is subject to non-sampling risk. Specific items selected may include:
• High value or key items . The auditor may decide to select specific items
within a population because they are of high value, or exhibit some
other characteristic, for example, ite ms that are suspicious, unusual,
particularly risk-prone or that have a history of error.

AUDIT EVIDENCE

ISA 500 396• All items over a certain amount . The auditor may decide to examine
items whose recorded values exceed a certain amount so as to verify a
large proportion of the total amount of a class of transactions or account
balance.
• Items to obtain information . The auditor may examine items to obtain
information about matters such as the nature of the entity or the nature of transactions.
A55. While selective examination of specifi c items from a class of transactions or
account balance will often be an efficient means of obtaining audit evidence, it
does not constitute audit sampling. The results of audit procedures applied to items selected in this way cannot be projected to the entire population; accordingly, selective examination of specific items does not provide audit
evidence concerning the remainder of the population.
Audit Sampling
A56. Audit sampling is designed to enable conclusions to be drawn about an entire
population on the basis of testing a sample drawn from it. Audit sampling is discussed in ISA 530.
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Inconsistency in, or Doubts ove r Reliability of, Audit Evidence (Ref: Para. 11)
A57. Obtaining audit evidence from different sources or of a different nature may
indicate that an individual item of audit evidence is not reliable, such as when
audit evidence obtained from one source is inconsistent with that obtained from another. This may be the case when, fo r example, responses to inquiries of
management, internal audit, and others are inconsistent, or when responses to inquiries of those charged with governance made to corroborate the responses to inquiries of management are inconsistent with the response by management. ISA 230 includes a specific documentation requirement if the auditor identified information that is inconsistent with the auditor’s final conclusion regarding a significant matter.
17

16 ISA 530, “Audit Sampling.”
17 ISA 230, “Audit Documentation,” paragraph 11.