Sameer & Co., Chartered Accountants, are conducting the audit of ABC Ltd. for the year ended 31st March, 2025. While testing accounts payable,…

Relevance deals with the logical connection between the audit procedure and the assertion under consideration. In the given case, testing the recorded accounts payable may be relevant when verifying overstatement, but not when testing for understatement. For detecting understatement of payables, procedures such as examining subsequent disbursements, unpaid invoices, suppliers' statements, and unmatched receiving reports are more relevant. Thus, the direction and purpose of testing affect the relevance of audit evidence. The auditor must consider both the relevance and reliability of audit evidence, as the quality of evidence depends on these factors. Relevance ensures that the evidence logically relates to the assertion being tested, while reliability depends on the source, nature, and circumstances under which the information is obtained. Only evidence that is both relevant and reliable can provide a sound basis for expressing an opinion on the truth and fairness of financial statements.