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CA Intermediate · Auditing and Ethics · Audit Evidence

During the audit of Kaveri Pharma Ltd, the auditor receives a bank confirmation directly from the bank by post, and the client also hands over a photocopy of a bank statement showing a different balance. Under SA 500 on the reliability of audit evidence, which evidence is generally more reliable?

The direct bank confirmation is more reliable. SA 500 states that evidence from independent external sources obtained directly by the auditor is more reliable than evidence supplied by the client, and original documents are more reliable than photocopies. The difference in balances should then be reconciled and investigated.

  1. AThe photocopy of the bank statement, as it is readily available and complete
  2. BBoth are equally reliable since both originate from the bank
  3. CThe confirmation received directly from the bank, as it is obtained from an independent external sourceCorrect
  4. DNeither, until management signs a representation letter confirming the balance

Explanation

Under SA 500, evidence obtained directly by the auditor from independent external sources is more reliable than evidence supplied by the entity, and originals are more reliable than photocopies. The photocopy passed on by the client could have been altered. The difference should still be investigated, perhaps through a bank reconciliation.

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