Final answer:
Sufficiency refers to the quantity of evidence and is influenced by the risk of misstatement, while appropriateness concerns the quality of evidence, focusing on relevance and reliability. Both concepts are essential in audit evidence and require professional judgment to determine if the evidence is adequate to support the auditor's conclusions.
Step-by-step explanation:
Definition of Sufficiency and Appropriateness of Audit Evidence
When evaluating a situation or presenting an argument, particularly in the auditing context, it is essential to have evidence that adequately supports the conclusions drawn. The concepts of sufficiency and appropriateness of audit evidence are crucial in this scenario. Sufficiency refers to the quantity of evidence obtained; it is the measure of the volume of evidence that must be accumulated to arrive at a correct decision. Sufficiency is influenced by the risk of misstatement and the quality of the evidence, meaning that higher risks or lower quality evidence will require more evidence to be gathered.
Appropriateness, on the other hand, is about the quality of the evidence. It includes relevance and reliability, with reliability being affected by the source and nature of the evidence and the circumstances under which it is obtained. Evidence should be factual, credible, and derived from a reliable source to be considered appropriate. For instance, a definition such as given in the Personal Data Notification & Protection Act of 2017 as evidence for a security breach is an example of evidence that is both relevant and reliable.
For audit evidence to be considered sufficient and appropriate, it must be enough in quantity and reliable in quality to justify the auditor's conclusions. Audit evidence will typically include documents, communications with external parties, or observations by the auditor. There are rules of thumb on adequate sample sizes and methods to estimate minimum sample sizes, however, in general, it is accepted that there is no substitute for adequate sampling. Gathering more evidence than one thinks is necessary allows for a robust and defendable conclusion.
Applying the criteria of sufficiency and appropriateness is a matter of professional judgment. The auditor must evaluate whether the evidence is persuasive enough to support the intended assertion, whether the logic presented is credible, and if any relevant points have been omitted that could influence the conclusion. The evaluation should also consider the timeliness and relevance of the research and other elements such as the quality of the writing and the presentation of the report.