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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

The auditor of Bharat Foods Ltd wishes to verify the existence of investments held in the form of shares in dematerialised form. Which evidence is most reliable?

The most reliable evidence is a holding statement or confirmation obtained directly from the depository participant and agreed to the books. It comes from an independent external source and shows existence at the date, unlike management schedules, minutes or old contract notes.

  1. AManagement's schedule of investments signed by the CFO
  2. BConfirmation or statement of holdings obtained directly from the depository participant, agreed to the booksCorrect
  3. CBoard minutes approving the purchase of the shares
  4. DBroker contract notes of purchases made in earlier years

Explanation

Evidence from external independent sources is more reliable than internally generated evidence (SA 500). A depository participant statement directly shows the holdings at the date and can be agreed to the ledger. Management schedules and minutes show only internal approval, and old contract notes do not prove current holdings.

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