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

During the audit of Kestrel Retail Co, the audit manager notes that the sales director has provided a detailed verbal explanation for a large fall in gross margin. No supporting documents were offered. Which statement best reflects ISA 500 on the reliability of this evidence?

Oral explanations from management are less reliable than documentary evidence and are not independent of the entity. The auditor should corroborate the director's explanation with other evidence, such as sales mix analysis and cost records, rather than relying on it alone or on a written representation.

  1. AIt is highly reliable because the director has detailed knowledge of the business
  2. BIt is less reliable than documentary evidence and should be corroborated with other evidenceCorrect
  3. CIt is sufficient evidence if the director signs a written representation
  4. DIt is appropriate evidence only if the explanation is consistent with last year's explanation

Explanation

ISA 500 and audit practice treat oral evidence as less reliable than documentary evidence, and evidence from management is less independent. It should be corroborated, for example by analysing sales mix and cost records. A written representation does not replace other evidence where it can be obtained, so the representation option is wrong.

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