The auditor may rely on sufficient appropriate evidence obtained by substantive testing to form his opinion. Alternatively he may be able to obtain assurance from the presence of a reliable internal control system and therefore reduce the extent of substantive testing. The auditor obtains evidence in performing compliance and substantive procedures using the following methods;

  1. Inspection
    This consists of examining records, documents or tangible assets. The reliability of the evidence obtained from inspection of records and documents depends on the nature, source and effectiveness of the internal control system. Inspection of tangible assets provides evidence with respect to their existence but not as to their value and ownership.
  2. Observation
    This involves looking at procedures being performed by others. E.g. observing the counting of stock by the client’s personnel.
  3. Inquiry and confirmation
    Inquiry consists of seeking information of knowledgeable persons inside or outside the entity. This ranges from formal written inquiries addressed to 3rd parties to oral inquiries addressed to persons within the entity. The information may be new to the auditor or may corroborate evidence from other sources. Confirmation is the response to an enquiry to corroborate information contained in the accounting records.
  4. Computation
    This involves checking the arithmetical accuracy of source documents and accounting records or performing independent computations. E.g. re-computing the amount of provision for depreciation and comparing this against that computed by the client.
  5. Analytical procedures
    The analysis of relationships such as between items of financial data to identify consistencies and predicted patterns or significant fluctuations and unexpected relationships and the results of investigations thereof.