Skip to content

ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations

Auditors of Norvale Ltd wish to obtain evidence about the existence of inventory held in a third-party warehouse. Which of the following would provide the MOST reliable evidence on existence, in line with ISA 500 principles?

The most reliable evidence is a direct confirmation from the independent warehouse operator combined with auditor attendance at a count. Both are obtained by the auditor from outside management's control, whereas contracts, internal records and management schedules do not independently establish that the inventory physically exists.

  1. AA copy of the warehouse storage agreement held by Norvale's finance director
  2. BA confirmation received directly by the auditor from the warehouse operator, together with a count attended by the auditor's staffCorrect
  3. CNorvale's perpetual inventory records reconciled to the general ledger
  4. DA schedule of inventory by location prepared by Norvale's financial controller

Explanation

Evidence obtained directly by the auditor from an independent external source, plus the auditor's own observation, is more reliable than internally generated information. The agreement shows a contractual relationship, not that goods exist. Inventory records and schedules are internal and do not independently prove physical existence.

Did you get it right without looking?

One question tells you little. A timed set on Evidence and testing considerations shows your real accuracy, how long you take and where you lose marks.

Practise Evidence and testing considerationsFree diagnostic mock

More Evidence and testing considerations questions