When the evidence contradicts your conclusion
How an audit file should show that evidence inconsistent with a conclusion on a significant matter was found, weighed and resolved, with a model note.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
Audit files are good at showing evidence that supports a conclusion. They are much worse at showing the evidence that did not. A supplier statement that shows more owing than the client's creditors listing, a lawyer's letter that hints at a claim management called remote, a large receipt after year end from a customer the team had just provided against: each of these gets noticed, discussed in the corridor, and then quietly disappears from the file once the team has settled on its view.
When the file later reaches a reviewer or an inspector, the absence is what they notice. This article explains what the standards expect when evidence cuts against a conclusion, and how to leave a clear, short record of how it was dealt with.
What ISA 230 asks for
ACCA explains that under ISA 230, if the auditor identifies information that contradicts or is inconsistent with the final conclusion on a significant matter, the auditor should document how the contradiction or inconsistency was addressed in forming that conclusion. ACCA's article on documentation and an effective audit service sets this alongside the other ISA 230 requirements.
Two features of the requirement are easy to miss. It applies to significant matters, so not every stray inconsistency needs a memo. And it asks how the contradiction was addressed, not merely that it was noticed. A line saying "supplier statement differs, noted" fails the test.
Where contradictions turn up
Some patterns are common enough to watch for on every file:
- Supplier statements. A statement shows invoices the client has not recorded, which cuts against a conclusion that creditors are complete.
- Legal confirmations. The attorney's reply describes a claim in terms that do not fit management's view that no provision is needed.
- Subsequent receipts. A customer the team considered doubtful pays in full after year end, or a customer considered sound goes silent.
- Inventory. Count observations show slow-moving lines that the valuation schedule treats as current.
- Management's own documents. Board minutes discuss a restructuring that the going concern assessment does not mention.
None of these means the conclusion is wrong. Each means the conclusion now needs a reason that deals with the contradicting information.
Resolving it: three honest routes
Once the inconsistency is spotted, there are three ways forward, and the file should show which one was taken.
Obtain more evidence. Perhaps the supplier statement includes goods delivered after year end; matching delivery notes resolves it. The documentation shows the extra procedure and its result.
Consult. Where the matter is a question of judgement or interpretation, take it to someone with the right expertise. The consultation and its outcome become part of the record.
Change the conclusion. Sometimes the contradicting evidence is right. The provision goes up, the disclosure changes, or the misstatement goes onto the schedule. A file that shows a conclusion changing because of evidence is a file that shows scepticism at work.
ICAEW explains that ISA 200 defines professional scepticism as an attitude that includes a questioning mind, alertness to conditions that may indicate misstatement due to error or fraud, and a critical assessment of audit evidence, and that it includes challenging the reliability of responses from management and those charged with governance. ICAEW also explains that professional judgement, as ISA 200 defines it, cannot justify decisions that are not supported by the facts or by sufficient appropriate evidence. A conclusion kept in spite of contradicting evidence, with no explanation, is exactly that kind of unsupported decision.
Why the quality reviewer will go looking
On engagements with an engagement quality review, the reviewer is expected to probe precisely these areas. ACCA explains that under ISQM 2 the reviewer must understand the significant judgements, assess whether the documentation supports them and decide whether the conclusions are appropriate. A significant judgement made in the face of contradicting information is one of the first places an experienced reviewer will look, and the reviewer will expect the file to explain the resolution without needing a conversation.
Consultations, review notes and registers in Achekam
Achekam does not detect contradicting evidence for you; the team has to spot it. What it provides are places to record the response so it stays attached to the engagement.
- Review notes. A reviewer can raise review notes on a working paper; the preparer answers and the reviewer clears them, and each note's history is kept. AI can suggest notes, but a person raises each one. A note such as "explain the difference between the supplier statement and the listing" is the natural way to make sure the explanation is written down.
- Consultations. Staff can take a technical consultation on an engagement from question to conclusion and closure, and record a difference of opinion with each party's position, escalation and resolution.
- Judgements register. The firm's quality registers, including professional judgements, are kept on the server with every version and who changed it. Sign-off roles on professional judgements are checked by the screen rather than the server, so the reviewer should confirm who signed.
Wording the note
A good note is short and answers four questions. A model, using the supplier statement example:
Matter: Supplier statement for the main raw materials supplier shows a balance higher than the creditors listing at year end.
Why it matters: It is inconsistent with our conclusion that trade creditors are complete.
What we did: Obtained the reconciliation from the client; traced each reconciling item to delivery notes and the next month's purchases journal; confirmed that the reconciling invoices relate to goods received after year end.
Conclusion: The difference is explained by timing. Our conclusion on completeness stands. See the reconciliation working paper.
The same structure works for a legal reply or a subsequent receipt. For more on recording the reasoning behind significant judgements, see documenting professional judgements, and for how consultations and disagreements are logged, read quality registers, consultations and disagreements.
The test of the note is simple: could a reviewer who was never in the corridor follow what happened? If yes, the contradiction has been dealt with on the file, not just in someone's head.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
