Skip to content

CA Intermediate · Auditing and Ethics · Audit Evidence

While auditing Ramkrishna Textiles Ltd, the auditor obtained a bank confirmation directly from the bank in a sealed reply received by post, and also a photocopy of the same bank statement provided by the company's accountant. The two differ on the closing balance. Which evidence should the auditor ordinarily regard as more reliable under SA 500?

The direct bank confirmation is more reliable. Under SA 500, evidence obtained directly by the auditor from an independent external source is more reliable than evidence supplied or handled by the entity's own staff. The difference should still be investigated and reconciled.

  1. AThe photocopy provided by the accountant, since it is a document of the entity itself
  2. BThe average of the two balances, as both are documentary evidence
  3. CThe direct bank confirmation, since evidence obtained from independent external sources is more reliableCorrect
  4. DNeither, because documentary evidence is never reliable without oral representation from management

Explanation

SA 500 states that audit evidence is more reliable when obtained from independent external sources and directly by the auditor. The bank's direct reply meets this test, whereas the photocopy came through the entity's staff and can be altered. The difference must still be investigated, but the confirmation carries greater weight.

Did you get it right without looking?

One question tells you little. A timed set on Audit Evidence shows your real accuracy, how long you take and where you lose marks.

Practise Audit EvidenceFree diagnostic mock

More Audit Evidence questions