CA Inter Auditing and Ethics Notes by PW for January 2027 Exam

An auditor cannot form an opinion on a company's financial statements without examining the information that supports the accounting records and reported figures. Understanding what qualifies as audit evidence, how it is obtained and how its reliability is assessed is therefore an important part of auditing.

The CA Inter Auditing and Ethics Notes by PW cover the Audit Evidence chapter through explanations of relevant Standards on Auditing, key concepts and practical illustrations. You can use these notes to understand the different forms of audit evidence, the procedures used to obtain it, and the considerations involved in selecting and evaluating audit samples.

CA Inter Auditing and Ethics Notes

Audit Evidence: Meaning and Importance

Audit evidence is the information an auditor uses to arrive at the conclusions on which the audit opinion is based. As per SA 500, it includes both the information contained in the accounting records underlying the financial statements and other information.

It is the foundation of auditing, because an opinion can be formed only after the financial statements have been examined objectively and critically. An opinion based on a careless examination may expose the auditor to legal action and loss of professional standing.

The objective of the auditor under SA 500 is to design and perform audit procedures that provide sufficient appropriate audit evidence to draw reasonable conclusions for the opinion.

Sources of Audit Evidence

Audit evidence comes from two broad sources.

• Accounting records: These include records of initial accounting entries and supporting records such as cheques and records of electronic fund transfers, invoices, contracts, general and subsidiary ledgers, journal entries and other adjustments, and work sheets and spreadsheets supporting cost allocations, computations, reconciliations and disclosures.

• Other information: This information authenticates the accounting records and supports the auditor’s reasoning on the true and fair presentation of the financial statements. Examples include minutes of meetings, written confirmations from trade receivables and trade payables, and manuals containing details of internal control.

Types of Audit Evidence

Audit evidence can be classified on the basis of its nature and its source.

Depending on nature:

• Visual: Observing the physical verification of inventory carried out by the client’s staff.

• Oral: Discussions with the management and various officers of the client.

• Documentary: Documents such as a fixed deposit certificate, a loan agreement or a sales bill.

Depending on source:

• Internal evidence: Evidence that originates within the organisation being audited. Examples are sales invoices, copies of sales challans and forwarding notes, goods received notes, inspection reports, copies of cash memos, and debit and credit notes.

• External evidence: Evidence that originates outside the client’s organisation. Examples are purchase invoices, supplier’s challans and forwarding notes, debit and credit notes coming from parties, quotations and confirmations.

Reliability of Internal and External Evidence

Most of the evidence an auditor gets is internal in nature, although a substantial amount of external evidence is also available.

Since the client and its staff control how internal evidence is created, the auditor should be careful in relying on it. This does not mean the evidence is suspected, but the auditor has to stay alert to the possibility of manipulation or false and misleading evidence.

External evidence is generally considered more reliable, because it comes from third parties who are not normally interested in manipulating the accounting information of others. However, if there is reason to doubt the independence of a third party, such as an associated concern issuing an invoice, greater vigilance is needed.

As a rule, the auditor should try to match internal and external evidence as far as practicable. Where external evidence is not readily available, the auditor should see how far the various internal evidences support one another.

CA Inter Auditing and Ethics Notes PDF for January 2027 Exam

Use the CA Inter Auditing and Ethics Notes PDF by PW to study the Audit Evidence chapter. It covers SA 500, SA 610, SA 530, SA 501, SA 505, SA 510, SA 550 and SA 520, along with their key concepts, audit procedures, examples and case studies.

Why use CA Inter Auditing and Ethics Notes by PW?

The Audit Evidence chapter explains how auditors obtain, assess and rely on information to form an audit opinion. The notes help you revise the relevant Standards on Auditing and understand their practical application. You can use them to: 

• Understand Audit Evidence under SA 500: Revise its meaning, types, sources, relevance and reliability, along with the concepts of sufficiency and appropriateness. The notes also explain how audit evidence supports the conclusions on which an auditor's opinion is based.

• Learn Different Audit Procedures: Understand the nature and timing of audit procedures, how they help obtain audit evidence, and how auditors evaluate the information collected.

• Study the Use of Internal Auditors under SA 610: Learn about the scope and objectives of the internal audit function, the nature and extent of its work, and coordination between internal and external auditors.

• Revise Audit Sampling under SA 530: Understand sampling units, the sampling process, different approaches and methods of selecting items for testing.

• Understand Evidence for Selected Items under SA 501: Study the specific audit considerations relating to inventory, litigation and claims involving the entity, and segment information.

• Learn External Confirmations under SA 505: Revise the meaning of external confirmations and understand the difference between positive and negative confirmations.

• Study Opening Balances under SA 510: Understand the requirements for initial audit engagements, including the objective, audit procedures and reporting considerations relating to opening balances.

• Understand Related Parties under SA 550: Learn the meaning and definition of related parties, along with the nature of related-party relationships and transactions.

• Revise Analytical Procedures under SA 520: Understand their meaning, scope, nature, timing, purpose and objectives, including how auditors form an overall conclusion using analytical procedures.

• Apply Concepts Through Examples and Case Studies: Refer to the practical illustrations and case studies included in the chapter to understand how audit evidence concepts and procedures apply in audit situations.

Use PW's CA Inter Auditing and Ethics Notes to revise the Audit Evidence chapter and understand the application of the relevant Standards on Auditing. Review the illustrations and case studies alongside the concepts to prepare for questions based on practical audit situations.

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