CA Intermediate · Auditing and Ethics · Audit Evidence

While auditing Kaveri Textiles Ltd, the auditor wants evidence about the existence of a large trade receivable from a customer in Surat. The auditor is deciding between inspecting the sales invoice held in the company's files and obtaining a direct written confirmation from the customer. Which statement best reflects the reliability of audit evidence under SA 500?

Evidence obtained directly by the auditor from an independent external source, such as a customer's written confirmation, is generally more reliable than evidence generated internally by the company, such as sales invoices held in its files, according to SA 500.

AEvidence from the company's own files is more reliable than evidence received directly from an external party
BEvidence obtained directly by the auditor from an independent external source is generally more reliable than internally generated evidenceCorrect
CBoth are equally reliable as long as the invoice is signed by the accountant
DOral confirmation from the customer is more reliable than a written confirmation

Explanation

SA 500 states that audit evidence is more reliable when obtained from independent sources outside the entity and when obtained directly by the auditor. A direct confirmation from the customer therefore outweighs an internal invoice. Option A reverses this principle, and oral evidence is less reliable than written evidence.

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