Question

REQUIRED: FOR THE VALUATION ASSERTION, IDENTIFY THE RISKIER [THAT IS,LESS RELIABLE] PROCEDURE. BE PREPARED TO EXPLAIN WHY.
Procedure A		Procedure B	Which [if either] is Riskier/ a more difficult procedure/ requires more judgement?
2. Examine 3-inch steel plates	versus	examine electronic parts.
3. Examine duplicate sales invoices when several competent people are checking each other's work	versus	examine documents prepared by a competent person on a one-person staff.
4. Physically examine inventory of parts for the number of units on hand	versus	examine inventory for obsolescence.
5. Estimate a company's oil reserves with a geologist specializing in oil and gas	versus	Estimate the amount of oil stored in a tank farm
6. Confirm a bank balance with the bank	versus	examine the bank statements provided by the client.
7. Physically count the client's inventory held by an independent party	versus	confirm the count with an independent party.
8. Confirm a client's bank balance with the bank.	versus	Examine the client's bank statements
9 Examine an original document	versus	Examine a copy of a document

Answer 1

The question is asking about which is more difficult procedure/more riskier/requires more judgement.

Below is the answer with the respective explanations.

2. Examine 3 Inch Steel plates is more riskier and also difficult procedure as we require the support of technical person for measurement purpose.(Reason: Instead of examining only 3 Inch Steel plates, Examining all electronic parts is less riskier)

3. Examine documents prepared by a competent person on a one-person staff is more riskier. ( Whenever the work of one perosn is reviewed by other person, it reduces the risk of error and fraud and gives us more reliable evidence and it is less riskier)

4. Examine inventory for obsolescence is more difficult as we have to understand the nature of Inventory and also its life cycle. It even requires the help of an expert. Hence it is more riskier compared to counting inventory in Hand.

5. Estimate the amount of oil stored in a tank farm is more riskier and less reliable as it leads to improper ascertainment of quantity which leads to improper stock quantity in records.

6. Examine the bank statements provided by the client is more riskier as there is a chance of manipulation of data provided by client. Obtaining confirmations directly from the bank is less riskier.

7. confirm the count with an independent party is more riskier as it may lead to improper communication from the third party. Physical verification of inventory held by third party is less riskier.

8. Examine the client's bank statements is more riskier as there is a chance of manipulation of data provided by client. Confirm a client's bank balance with the bank is less riskier and more reliable.

9. Examine a copy of a document ismore riskier than examining an original document.