“ISA 500 Audit Evidence,” is an International Standard on Auditing (ISA) issued by the International Auditing and Assurance Standards Board (IAASB). This standard establishes the requirements and guidance for auditors in obtaining and evaluating audit evidence to support their opinion on the financial statements.

On 31st May 2023 before the ICAEW investigations committee, UK audit firm Moore Kingston Smith LLP was ordered to pay a fine of £ 17,500.  Among the stated reasons leading to this judgement was a failure by the firm to design and perform audit procedures that were appropriate before issuing an audit opinion and in the circumstances obtaining sufficient appropriate audit evidence consistent with International Standard on Auditing 500 – Audit evidence.

The primary objective of ISA 500 is to ensure that auditors obtain sufficient appropriate audit evidence, which is relevant and reliable. Sufficient audit evidence is necessary to provide reasonable assurance about the financial statements’ fairness and to form an opinion in accordance with the auditor’s professional judgment. The following are the key considerations for auditors in meeting the compliance requirements for ISA 500:

  1. Sufficient Appropriate Audit Evidence:

The auditor must obtain enough evidence that is reliable, relevant, and obtained through appropriate audit procedures. The evidence should be persuasive enough to support the auditor’s opinion on the financial statements.

“Sufficient” in the context of audit evidence means obtaining enough relevant evidence to provide a reasonable basis for the auditor’s conclusions. The quantity of evidence required depends on various factors, including the assessed risks of material misstatement, the complexity of the entity’s transactions, and the effectiveness of its internal controls. In essence, auditors must gather enough evidence to establish a high level of confidence in their findings.

“Appropriate” pertains to the relevance and reliability of the audit evidence. Relevant evidence directly addresses the audit objectives and is capable of providing information about the financial statement assertions being tested. It should have a logical connection to the assertion being examined and contribute to the overall understanding of the entity’s financial position and performance.

The concept of sufficient appropriate audit evidence underscores the importance of auditors’ objectivity, skepticism, and professional judgment. Auditors must exercise professional skepticism to critically evaluate the evidence gathered, considering the possibility of material misstatement and the potential impact on the financial statements.

  1. Audit Procedures:

The standard provides guidance on various audit procedures that can be used to obtain audit evidence, such as inspection, observation, inquiry, confirmation, and analytical procedures. It emphasizes the need for the auditor to exercise professional judgment in determining the nature, timing, and extent of the procedures.

Audit procedures are the systematic and structured techniques employed by auditors to gather audit evidence and evaluate the reliability and accuracy of financial statements. These procedures are essential for conducting effective and meaningful audits, ensuring the integrity of financial reporting and providing assurance to stakeholders.

The selection and application of appropriate audit procedures depend on the specific circumstances of the audit engagement, including the nature of the entity, the assessed risks of material misstatement, and the objectives of the audit. Auditors exercise professional judgment to determine the most effective and efficient procedures to obtain relevant and reliable audit evidence.

  1. Assessing the Suitability of Audit Evidence:

The auditor must evaluate the relevance and reliability of the obtained audit evidence. Relevance refers to the degree to which the evidence supports the audit objective, while reliability relates to the credibility and trustworthiness of the evidence.

To assess relevance, auditors evaluate whether the audit evidence addresses the specific assertions and risks associated with the financial statement items. They consider whether the evidence obtained helps in confirming or refuting the existence, occurrence, rights and obligations, completeness, valuation, or presentation and disclosure of the items being audited.

Reliability relates to the credibility and trustworthiness of the audit evidence. It reflects the degree to which the evidence can be considered dependable and free from bias, error, or manipulation. Reliable evidence increases the level of confidence auditors can place in their findings and conclusions.

  1. Understanding the Entity and Its Environment:

The auditor is required to gain a thorough understanding of the entity being audited, including its internal control system, in order to assess the risks and design appropriate audit procedures to gather relevant and reliable evidence. It involves gaining comprehensive knowledge about the entity being audited, including its operations, industry, internal control systems, and the broader economic and regulatory environment in which it operates. This understanding provides auditors with a foundation for planning and conducting an effective and risk-focused audit.

The depth of understanding of the entity and its environment directly impacts the quality and effectiveness of the audit. A thorough understanding helps auditors tailor their audit procedures, allocate resources efficiently, and provide valuable insights and recommendations to the entity’s management and stakeholders.


ISA 500 outlines the various audit procedures that auditors can employ, such as inspection, observation, inquiry, confirmation, and analytical procedures. Auditors exercise professional judgment to determine the nature, timing, and extent of these procedures based on their understanding of the entity and its environment.

Compliance with ISA 500 is crucial for auditors as it ensures the effectiveness and quality of audits. Failure to comply with the standard may have severe consequences. Moore Kingston Smith LLP suffered reputational damage due to an auditing error. Audit firms can prevent such costly mistakes and protect their clients. Non-compliance can lead to a lack of sufficient appropriate audit evidence, potentially resulting in an inadequate audit opinion that may undermine the confidence of stakeholders, impair the reliability of financial statements, and harm the reputation of the audit firm and the auditing profession as a whole.

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Published On: July 6th, 2023 / Categories: Quality Assurance / Comments Off on ISA 500 Audit Evidence /

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