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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Audit procedures and obtaining evidence

Dalton Foods plc is audited by Rennie LLP. To test the valuation of trade receivables, the audit team can obtain: (1) a direct written confirmation received by the auditor from customers, (2) customer statements held by Dalton's credit controller, (3) an internally prepared aged receivables analysis, (4) oral explanations from the finance director. Applying ISA 500 generalisations about reliability, which is likely to be the MOST reliable?

Direct written confirmations received by the auditor from customers are most reliable. They come from an independent external source, are obtained directly by the auditor without client interference, and are documentary. Documents held by the client, internal analyses and oral explanations are all less reliable under ISA 500.

  1. AOral explanations from the finance director, as he is most knowledgeable
  2. BThe internally prepared aged receivables analysis, as it is produced by the system
  3. CCustomer statements held by the credit controller, as they come from third parties
  4. DDirect written confirmations received by the auditor from customersCorrect

Explanation

ISA 500 states evidence is more reliable when obtained from independent external sources and directly by the auditor, and when in documentary form. Direct confirmations meet these criteria. Customer statements held by the client have passed through the client's hands, so they are less reliable. Oral and internally generated evidence is weaker.

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