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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 fixed deposit: (i) the deposit register maintained by the accounts team, and (ii) a confirmation sent by the auditor to the bank and received by the auditor directly from the bank. Under SA 500 and SA 505, which conclusion is correct?

The bank confirmation is generally more reliable than the internal deposit register. Audit evidence is more reliable when it comes from independent sources outside the entity and is obtained directly by the auditor. Both conditions are met by the direct bank confirmation, whereas the register is generated internally by the entity.

  1. AThe bank confirmation is generally more reliable, because it comes from an independent source outside the entity and is obtained directly by the auditorCorrect
  2. BThe deposit register is more reliable, because it is maintained continuously by people who know the entity's transactions
  3. CBoth are equally reliable, because reliability depends only on the quantity of evidence obtained
  4. DThe deposit register is more reliable, because internally generated documents are always in documentary form

Explanation

SA 500, as referred to in SA 505, states that evidence is more reliable when obtained from independent sources outside the entity and when obtained directly by the auditor. The bank confirmation meets both tests. The register is internal evidence, so it is ordinarily less reliable, and documentary form alone does not outweigh the other two factors.

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