Eight different types of evidence were discussed. The following questions concer

Question

Eight different types of evidence were discussed. The following questions concern the reliability of that evidence:

Required

a. Explain why confirmations are normally more reliable evidence than inquiries of the client.

b. Describe a situation in which confirmation will be considered highly reliable and another in which it will not be reliable.

c. Under what circumstances is the physical observation of inventory considered relatively unreliable evidence?

d. Explain why recalculation tests are highly reliable but of relatively limited use.

e. Give three examples of relatively reliable documentation and three examples of less reliable documentation. What characteristics distinguish the two?

f. Give several examples in which the qualifications of the respondent or the qualifications of the auditor affect the reliability of the evidence.

g. Explain why analytical procedures are important evidence even though they are relatively unreliable by themselves.

Explanation / Answer

a.Confirmations are normally more reliable evidence than inquiries of the client because the confirmations usually come from an independent party outside of the company

b.1) Confirmation from a bank as to total liabilities of company

2) Department store credit account. (banks have excellent accounting records)

c. Physical examination is not sufficient evidence to verify that existing assets are actually owned by the client, nor does it provide a proper valuation for financial statement purposes.If the auditor is not able to distinguish between valuable inventory and worthless inventory (eg. diamonds and glass).

d. Auditor is able to gain 100% assurance of the accuracy, but the tests only verify whether the recorded amounts are calculated accurately. Does not uncover omissions/fake amounts.

e. 1) Vendor statements
2) bank statements
3) signed lease agreements

unreliable
1) copies of customer invoices
2) internal memoranda
3) listing of fixed asset additions

Difference is whether documents were generated externally or internally.

f.

1) Solicitor's letter - general counsel compared to a solicitor involved only with patents

2) examination of the corporate minutes - experienced partner compared to a new assistant

g

AP can only suggest that there are unusual fluctuations in data it is up to the auditor to investigate further as to where the unusual data arose from error or misstatement/fraud.ie supportive evidence is required to substantiate analytical procedures.

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.