Question

Jenna is working on the audit of a client’s accounts receivable. During the last few weeks, she has conducted interviews with the accounts receivable manager, the CFO, and staff working in the accounts receivable department. She has also overseen the external confirmations of accounts receivable, 70 percent of which required the recipient to respond as to whether or not the amount stated was correct. Jenna also conducted a review of subsequent cash receipts from the client’s customers. She vouched a sample of accounts receivable balances back to the underlying invoices, cash receipts, and sales returns, and traced a sample of these documents to the accounts receivable ledger.

Which of the following statements accurately describe the evidence collected and its persuasiveness?

a. External confirmations provide evidence regarding existence.

b. External confirmations provide the most persuasive type of evidence.

c. Documentary evidence provides more persuasive evidence than external confirmation.

d. Documentary evidence provides evidence regarding existence when vouching the sample of accounts receivable balances back to the supporting documentation.

e. Documentary evidence provides evidence regarding completeness when vouching the sample of accounts receivable balances back to the supporting documentation.

f. Verbal evidence provides less persuasive evidence than documentary evidence.

g. Verbal evidence gathered when the auditor asks about how bad debts are identified provides evidence regarding accuracy, valuation and allocation.

Answer 1

THE FOLLOWING STATEMENTS ACCURATELY DESCRIBE THE EVIDENCE COLLECTED AND ITS PERSUASIVENESS

WRITTEN (DOCUMENTARY) EVIDENCE IS BETTER THAN TESTIMONIAL EVIDENCE. EVIDENCE FROM EXTERNAL SOURCES IS MORE RELIABLE. ORIGINAL DOCUMENTS ARE PREFERABLE OVER THEIR PHOTOCOPIES. THE AUDITOR SHOULD HAVE A GOOD UNDERSTANDING OF INTERNAL CONTROL OF THE ORGANIZATION AS IT ENABLES HIM TO OBTAIN RELEVANT EVIDENCE.

A. EXTERNAL CONFIRMATIONS PROVIDE EVIDENCE REGARDING EXISTENCE.

B. EXTERNAL CONFIRMATIONS PROVIDE THE MOST PERSUASIVE TYPE OF EVIDENCE.

C. DOCUMENTARY EVIDENCE PROVIDES MORE PERSUASIVE EVIDENCE THAN EXTERNAL CONFIRMATION.

D. DOCUMENTARY EVIDENCE PROVIDES EVIDENCE REGARDING EXISTENCE WHEN VOUCHING THE SAMPLE OF ACCOUNTS RECEIVABLE BALANCES BACK TO THE SUPPORTING DOCUMENTATION.

E. DOCUMENTARY EVIDENCE PROVIDES EVIDENCE REGARDING COMPLETENESS WHEN VOUCHING THE SAMPLE OF ACCOUNTS RECEIVABLE BALANCES BACK TO THE SUPPORTING DOCUMENTATION.

F. VERBAL EVIDENCE PROVIDES LESS PERSUASIVE EVIDENCE THAN DOCUMENTARY EVIDENCE.

G. VERBAL EVIDENCE GATHERED WHEN THE AUDITOR ASKS ABOUT HOW BAD DEBTS ARE IDENTIFIED PROVIDES EVIDENCE REGARDING ACCURACY, VALUATION AND ALLOCATION.

WRITTEN (DOCUMENTARY) EVIDENCE IS BETTER THAN TESTIMONIAL EVIDENCE. EVIDENCE FROM EXTERNAL SOURCES IS MORE RELIABLE. ORIGINAL DOCUMENTS ARE PREFERABLE OVER THEIR PHOTOCOPIES. THE AUDITOR SHOULD HAVE A GOOD UNDERSTANDING OF INTERNAL CONTROL OF THE ORGANIZATION AS IT ENABLES HIM TO OBTAIN RELEVANT EVIDENCE.

CHARACTERISTICS OF OBJECTIVE EVIDENCE

THE TERM OBJECTIVE EVIDENCE SOUNDS RATHER COMPLICATED, BUT IT IS ACTUALLY VERY SIMPLE. HERE ARE THE CHARACTERISTICS OF OBJECTIVE EVIDENCE:

· UNBIASED: OBJECTIVE EVIDENCE IS UNBIASED. THAT MEANS IT IS NOT CLOUDED BY EMOTIONS OR FEELINGS. THE EVIDENCE IS GATHERED IN A COMPLETELY NEUTRAL WAY. BIAS OFTEN ARISES WHEN THE AUDITOR HAS A PERSONAL RELATIONSHIP WITH THE PERSON THEY ARE INTERVIEWING DURING THE AUDIT. AUDITORS HAVE TO ALWAYS BE AWARE OF HOW THEIR PERSONAL RELATIONSHIPS INFLUENCE THE WAY THEY VIEW EVIDENCE. IF AN AUDITOR BELIEVES THEY’RE BECOMING BIASED, IT IS THEIR RESPONSIBILITY TO APPROACH THE LEAD AUDITOR OR QUALITY MANAGER AND MAKE THIS KNOWN.

· FACTUAL: OBJECTIVE EVIDENCE IS FACTUAL. THAT MEANS IT IS REAL, NOT MADE UP OR IMAGINED. VERY FEW AUDITORS INTENTIONALLY CREATE NON-FACTUAL EVIDENCE. IT SOMETIMES HAPPENS ACCIDENTALLY WHEN EVIDENCE IS MISINTERPRETED. THIS IS ONE OF THE BENEFITS OF AUDITING IN PAIRS. WHEN YOU ARE WITH SOMEBODY ELSE, YOU CAN ALWAYS ASK FOR THEIR OPINION OF THE EVIDENCE YOU’RE EXAMINING. THIS SHOULD KEEP YOU IN THE REALM OF FACTUAL EVIDENCE.

· FIRST HAND: OBJECTIVE EVIDENCE IS FIRST-HAND. THAT MEANS THE AUDITOR GETS EVIDENCE DIRECTLY FROM THE SOURCE. THE EVIDENCE IS SEEN, HEARD, READ, OR EXPERIENCED BY THE AUDITOR. A GOOD AUDITOR NEVER RELIES ON SECOND OR THIRD-HAND INFORMATION, AS IT IS OFTEN DISTORTED. THE MORE HAND OFFS IN AN INFORMATION CHAIN, THE MORE DISTORTION EXISTS AND THE LESS THE INFORMATION CAN BE TRUSTED.

· TRACEABLE: OBJECTIVE EVIDENCE IS TRACEABLE. THAT MEANS YOU INCLUDE ALL THE IDENTIFIERS ABOUT THE EVIDENCE. IDENTIFIERS COULD INCLUDE THE DATE, TIME, PART NUMBER, DEPARTMENT NAME, AND ANYTHING ELSE THAT LETS THE ORGANIZATION KNOW WHERE THE EVIDENCE CAME FROM. IN THEORY, AUDIT EVIDENCE SHOULD BE TRACEABLE ENOUGH THAT ANYBODY COULD SEE THE SAME THING THAT YOU SAW DURING THE AUDIT.

· IMPERSONAL: OBJECTIVE EVIDENCE IS IMPERSONAL. THE EVIDENCE IS WRITTEN TO REINFORCE A FOCUS ON SYSTEMS AND PROCESSES, INSTEAD OF PEOPLE. NAMES ARE OMITTED FROM EVIDENCE AND JOB TITLES ARE USED INSTEAD. NO OPINIONS ABOUT THE SEVERITY OR POSSIBLE IMPACTS OF EVIDENCE ARE INCLUDEDJUST THE FACTS ARE GIVEN. THE EVIDENCE IS WRITTEN IN A NEUTRAL, NON-ACCUSING MANNER.

• THIS COMPANY IS DOING A LOT OF THINGS RIGHT. IN TODAY’S EXTREMELY COMPETITIVE ECONOMY, BAD COMPANIES DON’T SURVIVE. THEY DRY UP AND BLOW AWAY VERY QUICKLY. IF THE COMPANY YOU’RE AUDITING IS STILL IN EXISTENCE, THEN IT MUST BE DOING AT LEAST A FEW THINGS CORRECTLY.
• THE PEOPLE HERE ARE INTERESTING AND HAVE SOME FASCINATING STORIES TO TELL ME. I HAVE FOUND THIS TO BE TRUE 100 PERCENT OF THE TIME. NO MATTER HOW BANAL AND COMMONPLACE AN ORGANIZATION SEEMS, IT WILL INCLUDE SOME PEOPLE WHO ABSOLUTELY FASCINATE ME. THEY WILL HAVE INTERESTING THINGS TO TELL ME AND I’LL HAVE A HARD TIME PULLING MYSELF AWAY FROM THEM.
• I WILL LEARN A LOT DURING THIS AUDIT. THERE ARE PROCESSES, TECHNOLOGIES, AND PRODUCTS HERE THAT I’VE NEVER SEEN BEFORE. YES, I’M HERE TO DO AN AUDIT, BUT THE BENEFITS OF THE AUDIT WILL FLOW IN BOTH DIRECTIONS. IF I’M PERCEPTIVE, I WILL LEARN AS MUCH FROM THEM AS THEY WILL LEARN FROM ME.
• I AM A PARTNER OF THE ORGANIZATION, NOT AN ADVERSARY. YOU’RE NOT LOOKING FOR NONCONFORMITIES; YOU’RE LOOKING FOR WAYS THAT THE ORGANIZATION CAN IMPROVE. THIS IS A SUBTLE BUT IMPORTANT DIFFERENCE. AT NO TIME SHOULD AN AUDITOR PORTRAY THE AUDIT AS A SPORT IN WHICH THE OBJECTIVE IS TO RACK UP NONCONFORMITIES. THE NUMBER OF NONCONFORMITIES IS INCONSEQUENTIAL. WHAT MATTERS IS THAT THE COMPANY KNOWS WHAT THEY NEED TO FOCUS ON.
• THE EVIDENCE I GATHER SHOULD FOCUS ON THE BIG PICTURE. AUDITING IS DEFINITELY A PROCESS OF DETAILS. MY TASK IS TO ACCUMULATE THE DETAILS INTO TRENDS THAT WILL HELP THE ORGANIZATION IMPROVE. I NEED TO PROBE BENEATH THE SURFACE AND UNCOVER THE TRUE STRENGTHS AND WEAKNESSES OF THE ORGANIZATION. I WILL ONLY BE ABLE TO DO THIS ONCE THE ORGANIZATION TRUSTS ME AND UNDERSTANDS THAT I AM TRULY THERE TO HELP THEM.