CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence
While auditing Kaveri Textiles Ltd, CA Rohan must decide how much weight to give different pieces of evidence about year-end trade receivables. He has (i) a customer confirmation received directly by him from the customer's email, (ii) a copy of the sales invoice held in the company's files, and (iii) the accountant's verbal assurance. Under SA 500 and SA 505, which conclusion is correct about reliability?
The customer confirmation received directly by the auditor is the most reliable. Audit evidence is more reliable when it comes from independent external sources, is obtained directly by the auditor, and exists in documentary form. Internal invoices and verbal assurances from staff are weaker on these attributes.
- AThe confirmation received directly from the independent customer is generally the most reliable of the threeCorrect
- BThe sales invoice held by the company is the most reliable because it is in documentary form
- CThe accountant's verbal assurance is most reliable because he knows the business best
- DAll three are equally reliable since each relates to the same receivable
Explanation
SA 500 generalisations state that evidence is more reliable when obtained from independent sources outside the entity, obtained directly by the auditor, and in documentary form. The confirmation meets all three; the invoice is internal and the verbal assurance is neither independent nor documentary. Hence the invoice is not more reliable merely because it is documentary.
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