CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence
While auditing Kaveri Textiles Ltd, CA Meera must decide which evidence on the existence of a Rs 80 lakh receivable from a customer is most reliable. Four items are available: (i) a copy of the sales invoice held in the company's files, (ii) a written reply sent by the customer directly to Meera, (iii) the accountant's oral statement that the customer pays regularly, and (iv) a customer ledger printout generated by the company. Which item is ordinarily the most reliable?
The customer's written reply sent directly to the auditor is the most reliable. Evidence is more reliable when obtained from independent outside sources, obtained directly by the auditor, and held in documentary form. Internally generated records and oral statements by management staff are weaker on these tests.
- AThe sales invoice copy held in the company's files
- BThe customer's written reply received directly by the auditorCorrect
- CThe accountant's oral statement about the customer's payment record
- DThe customer ledger printout generated by the company's system
Explanation
Audit evidence is more reliable when it comes from independent sources outside the entity, when obtained directly by the auditor, and when it exists in documentary form. The customer's reply meets all three tests. The invoice copy and ledger are internally generated, and the oral statement is the weakest because it is neither independent nor documentary.
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