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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence

While auditing Kaveri Textiles Ltd, CA Ritu must decide which evidence on the existence of trade receivables is most reliable. She has (i) the ledger balance report generated by the company's ERP, (ii) a written reply sent by the customer directly to her, and (iii) a copy of the sales invoice held in the company's files. Which is the most reliable?

The customer's reply received directly by the auditor is most reliable. Audit evidence from independent sources outside the entity, and obtained directly by the auditor, is more reliable than internally generated records or evidence obtained indirectly, even when those records are in documentary or electronic form.

  1. AThe ERP ledger balance report, because it is in electronic form
  2. BThe customer's reply received directly by the auditorCorrect
  3. CThe copy of the sales invoice from the company's files
  4. DAll three are equally reliable because each is documentary

Explanation

SA 500 states that evidence is more reliable when obtained from independent sources outside the entity and when obtained directly by the auditor. The customer's reply meets both tests. The ERP report and the invoice copy are internally held, so they are less reliable even though documentary.

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