1. Sufficient Appropriate Audit Evidence (ISA 500)
Auditors do not guess; they base opinions on evidence.
  • Sufficiency: The quantity of evidence required, which is heavily influenced by the risk of misstatement and sample sizes.
  • Appropriateness: The quality of evidence, measured by its Relevance (matches the specific assertion) and Reliability (influenced by its source).
    • Reliability Rules: Original documents are more reliable than photocopies. Written evidence is more reliable than verbal testimony. Evidence obtained directly by the auditor is more reliable than evidence provided by management. External confirmations (bank sheets) are highly reliable.

2. Financial Statement Assertions Matrix
Management implicitly makes representations when presenting financial statements. The auditor must perform substantive testing to verify these explicit assertions across two key transaction states:
┌───────────────────────────────────────────────────────────────────────────┐
│                    AUDITING TRANSACTIONS AND BALANCES                     │
├───────────────────────────────────┬───────────────────────────────────────┤
│    TRANSACTIONS & INCOME EVENTS   │      ACCOUNT BALANCES (YEAR-END)      │
├───────────────────────────────────┼───────────────────────────────────────┤
│ • Occurrence: Did it actually happen?│ • Existence: Do these assets exist?   │
│ • Completeness: Is anything missing?│ • Completeness: Are all debts listed? │
│ • Accuracy: Are numbers calculated correctly?│ • Rights & Obligations: Ownership verified?│
│ • Cut-off: Recorded in correct period?│ • Valuation & Allocation: Correct book │
│                                   │   value applied (e.g., IFRS/GAAP rules)?│
└───────────────────────────────────┴───────────────────────────────────────┘

3. Types of Audit Procedures
To gather evidence, auditors deploy seven standard procedural techniques (AEIOU + R):
  • Analytical Procedures: Evaluation of financial data by analyzing plausible relationships across financial and non-financial data trends.
  • Enquiry: Seeking information from knowledgeable persons inside or outside the entity.
  • Inspection: Examining records, source documents, or tangible physical assets.
  • Observation: Looking at a process or procedure being performed by others (e.g., observing inventory counting).
  • Confirmation (External): Direct written responses from a third party (e.g., bank confirmations, accounts receivable circularization).
  • Recalculation: Checking the mathematical accuracy of documents or records.
  • Re-performance: Independent execution of procedures or controls originally performed by the client.

 
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