CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence
While auditing Kaveri Textiles Ltd, the auditor must decide which evidence on trade receivables is most reliable. Evidence available: (i) the company's own sales ledger, (ii) a copy of an invoice held by the company, (iii) a reply received directly by the auditor from the customer confirming the balance, (iv) the accountant's oral assurance. Which evidence is ordinarily most reliable?
The customer's reply received directly by the auditor is 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 ledgers, invoice copies and oral assurances are generated or given by the entity itself.
- AThe company's sales ledger
- BA copy of the invoice held by the company
- CThe reply received directly by the auditor from the customerCorrect
- DThe accountant's oral assurance
Explanation
SA 500 and SA 505 state that evidence is more reliable when obtained from independent sources outside the entity and when obtained directly by the auditor. The customer's direct reply satisfies both and is documentary. The sales ledger and invoice copy are internally generated, and oral assurance is the weakest.
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