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CA Intermediate · Auditing and Ethics · Audit Evidence

While auditing Kaveri Textiles Ltd, the auditor wishes to rely on a schedule of trade receivables ageing prepared by the company's accounts team and used to assess the allowance for doubtful debts. Under SA 500, what should the auditor do before using this information as audit evidence?

The auditor must evaluate whether the entity-produced ageing schedule is sufficiently reliable for the purpose, including testing its accuracy and completeness, before using it as audit evidence. SA 500 does not allow blind acceptance, nor does it require rejecting internal information or relying on representations alone.

  1. AAccept it, because information produced by the entity is always reliable evidence
  2. BEvaluate whether the information is sufficiently reliable for the audit purpose, including its accuracy and completenessCorrect
  3. CDiscard it and use only evidence obtained from external parties
  4. DUse it only if the management representation letter mentions the schedule

Explanation

SA 500 requires the auditor, when using information produced by the entity, to evaluate whether it is sufficiently reliable for the auditor's purposes, including testing its accuracy and completeness. Accepting it without evaluation ignores this requirement. External evidence is generally more reliable but internal information is not to be discarded. A representation letter cannot replace such evaluation.

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