(Audit evidence) During the course of an audit, the auditor examines a wide vari

Question

(Audit evidence) During the course of an audit, the auditor examines a wide variety of documentation. Listed below are some forms of documentary evidence and the sources from which they are obtained.

1. Bank statement sent directly to the auditor by the bank.

2. Creditor monthly statement obtained from client's files.

3. Vouchers in client's unpaid voucher file.

4. Duplicate sales invoices in filled order file.

5. Time tickets filed in payroll department.

6. Credit memo in customer's file.

7. Material requisitions filed in storeroom.

8. Bank statement in client's files.

9. Management working papers in making accounting estimates.

10. Paid checks returned with bank statement in (1) above.

11. Letter in customer file from collection agency on collectibility of balance.

12. Memo in customer file from treasurer authorizing the write-off of the account.

Required

A.Classify the evidence by source into one of four categories: (1) directly from outsiders, (2) indirectly from outsiders, (3) internal but validated externally, and (4) entirely internal.

B. Comment on the reliability of the four sources of documentary evidence for each answer

Explanation / Answer

(2) Indirectly from outsiders

(3) Internal but validated externally

(4) Entirely internal.

Answer 2

"When evidential matter obtained from independent sources outside an enterprise, it provides greater assurance of reliability for the purposes of an independent audit than that solely received within the enterprise.

The four sources of evidence listed in requirement may be ranked from most to least reliable as follows: (1) directly from outsiders, (2) indirectly from outsiders, (3) internal but validated externally, (4) entirely internal.

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