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Sufficient Appropriate Audit Evidence
10.14 Sufficient Appropriate Audit Evidence. The auditor finds it necessary to rely on audit evidence that is persuasive rather than conclusive and will often seek audit evidence from different sources or of a different nature to support the same assertion. The reliability of audit evidence is not only important in determining sufficiency (quantity) of the information, but also the appropriateness (quality) of the information. Reliability of audit evidence is influenced by its source and its nature.
A. Define these terms: reliability of evidence, persuasiveness of evidence, and relevance of evidence.
B. Arrange the following people as sources of information from most reliable to least reliable and explain your reasoning:
1 new company employee,
2 company employee with five years’ experience,
3 company lawyer,
4 internal auditor,
5 external auditor,
6 auditor’s lawyer,
8 top management,
9 board of directors,
10 company supplier,
11 company customer.
10.15 Reliability and Cost of Evidence Gathering Techniques. The financial statements of Utgard Company of Drammen, Norway, a new client, indicate that large amounts of notes payable to banks were paid off during the period under audit. The auditor, Kristinge Korsvold, Statautoriseret Revisor, also notices that one customer’s account is much larger than the rest, and therefore decides to examine the evidence supporting this account.
Evaluate the reliability of each of the following types of evidence supporting these trans- actions for:
Notes Payable :
A. Debit entries in the Notes Payable account. B. Entries in the check register.
C. Paid checks.
D. Notes payable bearing bank perforation stamp PAID and the date of payment. E. Statement by client’s treasurer that notes had been paid at maturity.
F. Letter received by auditors directly from bank stating that no indebtedness on part of client existed as of the balance sheet date.
Customer Account :
G. Computer printout from accounts receivable subsidiary ledger. H. Copies of sales invoices in amount of the receivable.
I. Purchase order received from customer.
J. Shipping document describing the articles sold.
K. Letter received by client from customer acknowledging the correctness of the receivable in the amount shown on client’s accounting records.
L. Letter received by auditors directly from customer acknowledging the correctness of the amount shown as receivable on client’s accounting records.
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