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

While auditing Kaveri Textiles Ltd, the auditor must choose between two pieces of evidence on the same trade receivable balance: (i) a sales invoice copy held in the company's own files, and (ii) a written reply sent directly to the auditor by the customer confirming the balance. Applying the generalisations in SA 500 on reliability, which conclusion is correct?

The customer's direct written reply is generally more reliable. Under SA 500, evidence from independent external sources, and evidence obtained directly by the auditor, is more reliable than internally generated documents such as the company's own invoice copies, even though those are also in documentary form.

1. AThe customer's reply is generally more reliable because it comes from an independent source outside the entity and is received directly by the auditorCorrect
2. BThe invoice copy is more reliable because it is documentary and therefore always outweighs third-party replies
3. CBoth are equally reliable because the source of evidence does not affect reliability
4. DThe invoice copy is more reliable because internally generated evidence is easier to verify