Advanced Auditing, Assurance and Professional Ethics · Audit Evidence

Audit Procedures for Obtaining Audit Evidence (SA 500)

Updated 5 October 2026 · Fact-checked

Audit procedures are the methods an auditor uses to collect audit evidence: inspection, observation, external confirmation, recalculation, reperformance, analytical procedures and inquiry. You apply them as risk assessment procedures, tests of controls or substantive procedures. To solve a question, name the procedure, link it to the assertion or risk, and state what evidence it gives.

Understand Audit Procedures for Obtaining Audit Evidence

Audit evidence is the information the auditor uses to reach conclusions for the opinion. SA 500 says you get it by performing audit procedures. Think of procedures as the tools and evidence as what the tools produce.

There are seven procedures. Inspection is examining records or documents, internal or external, in paper, electronic or other form, or physically examining an asset. Observation is watching a process or procedure being performed by others, such as staff counting stock. External confirmation is evidence obtained as a direct written response from a third party to the auditor, on paper, electronic or other medium. Recalculation is checking the arithmetic accuracy of documents or records. Reperformance is the auditor independently executing procedures or controls that the entity originally performed. Analytical procedures evaluate financial information by studying plausible relationships among financial and non-financial data, and include investigating fluctuations that are inconsistent with other information. Inquiry is seeking information from knowledgeable persons inside or outside the entity.

These procedures are used for three purposes. As risk assessment procedures, they help you understand the entity and identify risks of material misstatement. As tests of controls, they check whether controls operated effectively. As substantive procedures, they detect material misstatements at assertion level. Substantive procedures are of two kinds: tests of details and substantive analytical procedures. The same procedure can serve different purposes, so always state the purpose in your answer.

Each procedure has limits. Inspection of a document proves it exists, not that the entity owns the asset. Observation shows the process only at the time you watch, since people may behave differently when observed. Inquiry alone is not enough to conclude on a risk or on control operation, so it must be corroborated. Choose procedures by the assertion you want to address and the reliability you need.

Key rules to remember

The seven procedures: Inspection, Observation, External confirmation, Recalculation, Reperformance, Analytical procedures, Inquiry; Remember as IO-ERRAI. Be ready to define each in one line.
Purposes of use: Risk assessment procedures | Tests of controls | Substantive procedures (tests of details + substantive analytical procedures); Procedures are chosen for the purpose; the same procedure can serve more than one.
Recalculation vs reperformance: Recalculation = checking arithmetic accuracy | Reperformance = independently executing a procedure or control the entity performed; Recalculation is about numbers. Reperformance is about a process or control.
Inquiry rule: Inquiry alone ordinarily does not give sufficient evidence of absence of material misstatement or of operating effectiveness of controls; Corroborate inquiry with other procedures.
Inspection of assets: Inspection of tangible asset gives reliable evidence of existence, but not necessarily rights and obligations or valuation; Link the procedure to the assertion it supports.

How to solve Audit Procedures for Obtaining Audit Evidence questions

Use this method for any question that asks which procedure to apply, what it proves, or how to distinguish procedures.

1Read the case and identify the account or balance and the assertion at stake, such as existence, completeness, valuation, or rights and obligations.
2Decide the purpose: risk assessment, test of controls or substantive procedure.
3Pick the procedure that best fits the assertion. For example, external confirmation for receivables existence, observation for stock counting, reperformance for a control.
4Define the procedure in one line using the SA 500 meaning.
5State what the procedure will show and what it will not show, so you cover its limitation.
6Mention corroboration if you rely on inquiry, or name a second procedure for complete coverage.
7Conclude on whether the evidence is sufficient and appropriate and what you would do next.

Quickest way: Match-the-verb shortcut

When to use it: When a short MCQ or a 3-4 mark question asks you to identify or distinguish a procedure.

Spot the key verb: examine = inspection, watch = observation, third party replies = confirmation.
Check numbers or arithmetic = recalculation; auditor does the task again = reperformance.
Study relationships, trends or ratios = analytical procedures; ask people = inquiry.
Add the purpose and one limitation in a single line to earn the full marks.

Common mistakes in Audit Procedures for Obtaining Audit Evidence

Using recalculation and reperformance as the same thing.
Both involve the auditor doing work again, so they look alike.
Fix: Recalculation checks arithmetic accuracy. Reperformance means independently executing a procedure or control, such as redoing a bank reconciliation process.
Treating inspection and observation as the same.
Both involve looking at something.
Fix: Inspection examines records, documents or assets. Observation watches a process being carried out by others, at a point in time.
Relying on inquiry alone to conclude on controls.
Management answers sound convincing and save time.
Fix: Corroborate inquiry with inspection, observation or reperformance. Say so explicitly in the answer.
Calling a confirmation 'external confirmation' when the client handled the reply.
Students focus on the third party and forget the direct response requirement.
Fix: The response must come directly to the auditor from the third party. If it passes through the client, reliability falls.
Listing procedures without linking them to an assertion or purpose.
Students memorise the list and stop there.
Fix: For each procedure, state the assertion it addresses and whether it is a risk assessment, control test or substantive procedure.
Saying inspection of an asset proves ownership.
Seeing the asset feels like full proof.
Fix: Physical inspection supports existence. Ownership needs documents such as title deeds or invoices.

Worked examples

Example 1

Case: You audit Mehta Textiles Ltd. At year end, trade receivables are ₹2,40,00,000, with several large balances. You suspect some customers may not exist. Management says all balances are genuine. Which audit procedures would you use, and what does each give?

Show the solution

Assertion at risk: existence of receivables. The purpose is substantive procedure (test of details).
Primary procedure: external confirmation. Send requests to selected customers and have replies come directly to you, which gives reliable evidence from a third party.
Supporting procedure: inspection of sales invoices, dispatch records and subsequent receipts to check that sales and collection occurred.
For non-responses, perform alternative procedures, such as inspecting subsequent cash receipts and shipping documents.
Inquiry of management is only a starting point and cannot be relied upon alone because it is not independent.

Answer: Use external confirmation as the main procedure for existence, supported by inspection of invoices, dispatch documents and subsequent receipts. Use inquiry only as corroborated support, and apply alternative procedures for non-responses.

Example 2

Case: In an audit of Rao Pharma Ltd, the auditor (a) independently re-ran the entity's three-way match control on 25 purchase invoices, (b) added up the columns of the fixed asset register and checked the depreciation figures, and (c) watched the warehouse team count stock on the last day of the year. Name the procedure in each case and the purpose it likely serves.

Show the solution

(a) The auditor executes a control the entity performed, independently. This is reperformance. It is used as a test of controls, to judge operating effectiveness.
(b) The auditor checks arithmetic accuracy of the register and depreciation. This is recalculation. It is a substantive procedure supporting valuation and accuracy.
(c) The auditor watches staff carry out the count. This is observation. It is a substantive procedure for existence of stock and also shows how the count control works.
Limitation of (c): observation shows the process only at that time, so the auditor should also inspect count records and test the roll-forward or roll-back to the balance sheet date.

Answer: (a) Reperformance, test of controls. (b) Recalculation, substantive procedure. (c) Observation, substantive procedure for existence, with a limitation that it covers only the time of observation.

Exam tips

Define each procedure in one line first, then apply it to the case; examiners reward the SA 500 meaning plus application.
Always state the purpose (risk assessment, control test or substantive) and the assertion; this separates good answers from list answers.
For distinction questions, use two columns in your mind: what is examined or done, and what evidence results. Write a short contrast for each pair.
In case-scenario MCQs, find the verb in the case: examining, watching, re-doing, recomputing, asking. It points to the procedure.

Practice questions from Audit Evidence

Audit Procedures for Obtaining Audit Evidence in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Audit Procedures for Obtaining Audit Evidence: frequently asked questions

What is the difference between inspection and observation?

Inspection is examining records, documents or assets. Observation is watching a process or procedure being performed by others, such as a stock count. Inspection deals with things, observation deals with activity at a point in time.

What is the difference between recalculation and reperformance?

Recalculation checks the arithmetic accuracy of documents or records. Reperformance is the auditor independently executing a procedure or control that the entity performed. Recalculation concerns numbers, reperformance concerns a process.

Can inquiry alone be sufficient audit evidence?

Ordinarily no. Inquiry alone does not give sufficient evidence that there is no material misstatement or that controls operated effectively. You corroborate it with other procedures such as inspection or observation.

Are these procedures used only for substantive testing?

No. They are used as risk assessment procedures, tests of controls and substantive procedures. The same procedure, for example inquiry or inspection, can serve more than one purpose depending on why you perform it.