How audit evidence is gathered: 7 procedures (ISA 500)
Inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry: what each one proves well and where it is weak. A table using a hypothetical leather goods factory, sufficiency and appropriateness of evidence, and reliability factors.
The auditor, Javlon, looked at one line in the financial statements of "Qo'qon Charm" LLC: "Property, plant and equipment: new sewing line". The question in front of him: does this line really exist, does it belong to the company, is it valued correctly and is its depreciation calculated correctly? One document on its own does not answer all of these questions. That is why the auditor combines different procedures.
Conditions: the company, names and figures are hypothetical, compiled by the author. Amounts are in thousand soum.
In Uzbekistan the international standards on auditing are the standards of auditing activity (Law "On Auditing Activity", Article 9). Audit evidence is covered by ISA 500. In August 2026 the IAASB issued exposure drafts of revised ISA 330, ISA 500 and ISA 520 for comment (comments due by 15 December 2026); this article is based on the extant version.
What are the 7 procedures?
ISA 500 lists seven audit procedures for obtaining evidence. Here they are using "Qo'qon Charm":
| Procedure | What is done | Example at "Qo'qon Charm" | Strength and limitation |
|---|---|---|---|
| 1. Inspection | examining records and documents or physically examining an asset | the purchase contract and acceptance certificate for the line are read, the line itself is seen in the workshop | seeing an asset gives good evidence of its existence, but not necessarily of the rights to it or its valuation |
| 2. Observation | looking at a process performed by others | observing how storekeepers count leather at the year-end inventory count | evidence only for the moment of observation; the presence of an observer may change how people act |
| 3. External confirmation (ISA 505) | obtaining a written response from a third party directly to the auditor | the bank's response on the current account balance and the loan balance | an independent source outside the company, usually reliable |
| 4. Recalculation | checking the mathematical accuracy of documents or records | recalculating depreciation on the line | proves the calculation is right, but not that the input data are right |
| 5. Reperformance | the auditor independently re-executes a control or procedure of the company | the receivables ageing schedule is rebuilt from the software | directly shows whether the control or report worked correctly |
| 6. Analytical procedures (ISA 520) | analysing plausible relationships between financial and non-financial data | leather used in square metres is compared with the number of shoes produced | quickly finds an unusual difference; the cause of the difference must be established with other procedures |
| 7. Inquiry | seeking information from knowledgeable persons inside or outside the company | asking the chief engineer when the line was put into operation | useful initial information, but on its own ordinarily not sufficient |
Two examples with figures
Recalculation. The line costs 240 000; the company's accounting policy sets the straight-line method and a useful life of 8 years (hypothetical). Annual depreciation: 240 000 ÷ 8 = 30 000. The records, however, show 34 000. The difference is 4 000: Javlon asks for the reason and adds it to the list of misstatements.
Analytical procedure. During the year 48 000 pairs of shoes were produced. According to the process sheet, one pair uses on average 0.25 sq. m of leather (hypothetical). Expected consumption: 48 000 × 0.25 = 12 000 sq. m. The records show 13 800 sq. m of leather written off. The difference is 1 800 sq. m, that is, 15 percent more than expected. The difference itself is not an error, but it raises a question: has the waste norm changed, is there a shortage in the warehouse, or has consumption been recorded incorrectly? Javlon looks for the answer through inquiry, inspection of documents and the results of the inventory count.
What are sufficiency and appropriateness?
Evidence is assessed on two dimensions:
| Dimension | Meaning | What it depends on |
|---|---|---|
| Sufficiency | the quantity of evidence | the assessed risk of material misstatement and the quality of evidence: the higher the risk, the more evidence is needed |
| Appropriateness | the quality of evidence: its relevance and reliability | whether the evidence addresses exactly the assertion being tested and how reliable its source is |
For example, counting the leather in the warehouse is relevant evidence of its existence. But for the valuation of the leather other evidence is needed: purchase price documents and a comparison with the selling price.
Which evidence is more reliable?
The application material of ISA 500 gives general rules on the reliability of evidence:
| More reliable | Less reliable |
|---|---|
| obtained from an independent source outside the company | prepared by the company itself |
| generated internally when the related controls operate effectively | generated when controls are weak |
| obtained directly by the auditor (for example, observing the application of a control) | obtained indirectly or by inference (for example, inquiry about that control) |
| in documentary form (paper or electronic) | given orally |
| an original document | a photocopy or scanned copy |
These rules are a general direction, not an absolute law: for example, if the person who answered a confirmation letter does not know the matter well, the answer may also raise doubts. That is why the auditor looks critically at every source.
How can the accountant help the audit?
If original documents are in order, banks and counterparties respond quickly to confirmation requests, and the depreciation and inventory consumption calculations are explained, many of the auditor's questions resolve themselves. The answer "I'll explain it orally" almost always ends with a request for an additional document.
Test yourself
5 questions on this topic: pick an option or reveal the answer.
The auditor has four different pieces of evidence about the bank balance of "Uchtepa logistika". According to the general rules in the application material of ISA 500, which of them is usually considered the most reliable?
The auditor's report was signed on 1 March 2027. According to the application material of ISA 230 (audit documentation), what is usually an appropriate time limit for completing the assembly of the final audit file?
"Qirq qiz oziq-ovqat" LLC prepares its statements as at 31 December. The auditor wants to establish that deliveries of goods are recorded in the correct reporting period. Which procedure suits this aim best?
In the audit of "Zarmitan agro", the auditor could not obtain sufficient evidence on the warehouse balance. The manager gave a written confirmation that "the balance is correct". What is the role of this letter as audit evidence?
The auditor obtained sufficient evidence and found one material misstatement in the statements, but its effect relates to only one item and is not pervasive. Management did not correct it. Under ISA 705, what opinion is expressed?
Answered: 0 / 50 of 5 correct
All tests →See also
Sources
- Law of the Republic of Uzbekistan "On Auditing Activity" (25 February 2021, No. ZRU-677), Article 9 · international standards on auditing are the standards of auditing activity
- FRC: ISA (UK) 500 "Audit Evidence" · audit procedures: inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry
- IAASA: ISA (Ireland) 500 "Audit Evidence" · application material: definitions of the procedures and factors affecting the reliability of evidence
- XRB: ISA (NZ) 500 "Audit Evidence" · inquiry alone ordinarily does not provide sufficient evidence of the absence of a material misstatement at the assertion level or of the operating effectiveness of controls
- Chartered Accountants Ireland: ISA (UK and Ireland) 200, application material · sufficiency (quantity) and appropriateness (quality: relevance and reliability) of evidence
- IAASB: Proposed Revisions, Audit Evidence and Risk Response (ISA 330, ISA 500, ISA 520), August 2026 · part of the package of exposure drafts of revised ISA 330, ISA 500 and ISA 520; comments due by 15 December 2026
- Company, names, figures and calculations · compiled by the author, hypothetical