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CA Intermediate · Auditing and Ethics · Audit Evidence

While auditing Kaveri Textiles Ltd, the auditor wants evidence about the existence of fixed deposit receipts held with a bank. Which of the following would ordinarily be the most reliable evidence of existence?

Direct written confirmation received by the auditor from the bank is the most reliable evidence, because SA 500 treats evidence obtained directly from independent external sources as more reliable than internally generated documents, photocopies or oral representations given by management.

  1. AA photocopy of the receipt provided by the company's accountant
  2. BDirect written confirmation received by the auditor from the bankCorrect
  3. CA schedule of deposits prepared by the finance manager
  4. DA verbal assurance from the managing director

Explanation

Under SA 500 and SA 505, audit evidence is more reliable when obtained from independent external sources directly by the auditor. A bank confirmation received directly meets this. Photocopies, internal schedules and oral statements are internally generated or weaker and are less reliable.

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