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

While auditing Kaveri Textiles Ltd, the auditor must choose between two pieces of evidence for the existence of a large receivable from a customer: (i) a copy of the sales invoice held in the company's files, and (ii) a reply received directly by the auditor from the customer confirming the balance. Which conclusion is consistent with SA 500 and SA 505?

The customer's direct reply is ordinarily more reliable, because audit evidence from independent sources outside the entity, obtained directly by the auditor, is more reliable than internally held documents such as the entity's own copy of an invoice.

  1. AThe invoice is more reliable because it is in documentary form and held by the entity
  2. BBoth are equally reliable because each exists in documentary form
  3. CThe customer's reply is ordinarily more reliable because it comes from an independent outside source directly to the auditorCorrect
  4. DThe reply is less reliable because only entity-generated records can be tested by recalculation

Explanation

Audit evidence is more reliable when obtained from independent sources outside the entity and when obtained directly by the auditor. The invoice is internally generated, so the direct confirmation is ordinarily more reliable. Option A ignores source independence.

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