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available. When the information is in electronic form, the auditor maycarry out certain of the audit procedures described belowthrough CAATs. Inspection of Records or Documents Inspection consists of examining records or documents, whetherinternal or external, in paper form, electronic form, or othermedia. Inspection of records and documents provides auditevidence of varying degrees of reliability, depending on theirnature and source and, in the case of internal records anddocuments, on the effectiveness of the controls over theirproduction. An example of inspection used as a test ofcontrols is inspection of records or documents for evidence ofauthorization. Some documents represent direct audit evidence of theexistence of an asset, for example, a document constituting afinancial instrument such as a stock or bond. Inspection ofsuch documents may not necessarily provide audit evidenceabout ownership or value. In addition, inspecting an executedcontract may provide audit evidence relevant to the entity’sapplication of accounting policies, such as revenuerecognition. Inspection of Tangible Assets Inspection of tangible assets consists of physical examinationof the assets. Inspection of tangible assets may providereliable audit evidence with respect to their existence, butnot necessarily about the entity’s rights and obligations orthe valuation of the assets. Inspection of individualinventory items ordinarily accompanies the observation ofinventory counting. Observation Observation consists of looking at a process or procedurebeing performed by others. Examples include observation ofthe counting of inventories by the entity’s personnel andobservation of the performance of control activities.
Observation provides audit evidence about the performance of aprocess or procedure, but is limited to the point in time atwhich the observation takes place and by the fact that the actof being observed may affect how the process or procedure isperformed.SeePSA501,“AuditEvidence—AdditionalConsiderations for Specific Items” for further guidance onobservation of the counting of inventory. Inquiry Inquiry consists of seeking information of knowledgeablepersons, both financial and non-financial, throughout theentity or outside the entity. Inquiry is an audit procedurethat is used extensively throughout the audit and often iscomplementary to performing other audit procedures. Inquiriesmay range from formal written inquiries to informal oralinquiries. Evaluating responses to inquiries is an integralpart of the inquiry process. Responses to inquiries may provide the auditor withinformation not previously possessed or with corroborativeaudit evidence. Alternatively, responses might provideinformation that differs significantly from other informationthat the auditor has obtained, for example, informationregarding the possibility of management override of controls.