Question

In: Accounting

Assume that you are a newly appointed junior auditor in KPMG, an auditing firm. After a...

Assume that you are a newly appointed junior auditor in KPMG, an auditing firm. After a 3-month rigorous training on the job, you have been awarded the certificate of completion and is now ready to embark on your very first assignment. Today, your first job was to evaluate the audit evidence

gathered by your team fromMuscat Trading and see if they are reliable or not based on ISA 500. The following are the evidences gathered in various forms:

a) You were asked by your senior auditor to get direct confirmation from an independent lawyer on the certainty level of winning the legal case of Muscat Trading against a customer. The lawyer gave you his verbal confirmation that based on the legal evidences presented, Muscat Trading is sure to win the case.

b) Muscat Trading is well-run by the management and has an effective internal audit team. When you asked for sales invoice, they gave you the duplicate (second copy) of sales invoice.

c) Your colleague, the auditor in-charge of cash count gave you her report as part of audit

evidence.

d) One of the files in the audit evidences was a photocopy of company directors’ minutes of

meetings signed by the company secretary.

e) You have interviewed several key officials of the company about some material transactions

related to purchases. Their verbal reply was all recorded on camera and was included as audit evidence.

Required: I want to get the order of which one is most reliable to the least reliable.with reasons

Solutions

Expert Solution

Assume that you are a newly appointed junior auditor in KPMG, an auditing firm. After a 3-month rigorous training on the job, you have been awarded the certificate of completion and is now ready to embark on your very first assignment. Today, your first job was to evaluate the audit evidence

gathered by your team fromMuscat Trading and see if they are reliable or not based on ISA 500. The following are the evidences gathered in various forms:

a) You were asked by your senior auditor to get direct confirmation from an independent lawyer on the certainty level of winning the legal case of Muscat Trading against a customer. The lawyer gave you his verbal confirmation that based on the legal evidences presented, Muscat Trading is sure to win the case.

b) Muscat Trading is well-run by the management and has an effective internal audit team. When you asked for sales invoice, they gave you the duplicate (second copy) of sales invoice.

c) Your colleague, the auditor in-charge of cash count gave you her report as part of audit

evidence.

d) One of the files in the audit evidences was a photocopy of company directors’ minutes of

meetings signed by the company secretary.

e) You have interviewed several key officials of the company about some material transactions

related to purchases. Their verbal reply was all recorded on camera and was included as audit evidence.

Required: I want to get the order of which one is most reliable to the least reliable.with reasons

Answer of reliability of Audit evidence

As per ISA 500 pera A31 is As follow

The reliability of information to be used as audit evidence, and therefore of the audit evidence itself, is influenced by its source and its nature, and the circumstances under which it is obtained, including the controls over its preparation and maintenance where relevant. Therefore, generalizations about the reliability of various kinds of audit evidence are subject to important exceptions. Even when information to be used as audit evidence is obtained from sources external to the entity, circumstances may exist that could affect its reliability. For example, information obtained from an independent external source may not be reliable if the source is not knowledgeable, or a management’s expert may lack objectivity. While recognizing that exceptions may exist, the following generalizations about the reliability of audit evidence may be useful:

• The reliability of audit evidence is increased when it is obtained from independent sources outside the entity.

• The reliability of audit evidence that is generated internally is increased when the related controls, including those over its preparation and maintenance, imposed by the entity are effective.

• Audit evidence obtained directly by the auditor (for example, observation of the application of a control) is more reliable than audit evidence obtained indirectly or by inference (for example, inquiry about the application of a control).

• Audit evidence in documentary form, whether paper, electronic, or other medium, is more reliable than evidence obtained orally (for example, a contemporaneously written record of a meeting is more reliable than a subsequent oral representation of the matters discussed).

• Audit evidence provided by original documents is more reliable than audit evidence provided by photocopies or facsimiles, or documents that have been filmed, digitized or otherwise transformed into electronic

A: it is not reliable as per ISA500 pera A18 An external confirmation represents audit evidence obtained by the auditor as a direct written response to the auditor from a third party (the confirming party), in paper form, or by electronic or other medium. But in this case lawyer give verbal conformation of winning the case which is no reliable audit evidence.

B:in this case this audit evidence is obtained form Internal source of company it is less reliable. whenever auditor obtain audit evidence from internally at that time auditor must check the internal control of company . but in this case company internal control strong which is claim by company but not provide any written conformation about that. So as conclusion it is less reliable.

C:It is Not reliable because it is generated by audit team member . as per ISA Quality control review auditor also check that independence of team member and also reliability , ethical practice of that team.

D: It is not reliable as Per ISA 500 Pera A31 audit evidence obtain in original form rather than photo copy is more reliable. So that it is not reliable.

E: it is reliable Evidence. As per Pera A31 of ISA 500 Audit evidence in documentary form, whether paper, electronic, or other medium, is more reliable than evidence obtained orally (for example, a contemporaneously written record of a meeting is more reliable than a subsequent oral representation of the matters discussed). So in this case Evidence is obtain in electronic form of in video recording so it is more reliable.


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