Question

Assume that you are a newly appointed junior auditor in PwC, 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 from Salalah Trading and see if they are reliable or not based on ISA 500.

The following are the evidences gathered in various forms:

a) Your senior auditor assigned you to directly observe how a sale transaction is done in Salalah Trading. You were given three days to observe the sale transaction completely.

b)You need to get confirmation from customers if they really are paying their loans to Salalah Trading. The customers you have interviewed gave you their oral confirmation.

c) Your colleague, the auditor in-charge of physical examination of inventory of stocks gave their written report to you as part of audit evidence.

d)In the file of audite vidences,you also found the ratio analysis done by the previous auditors of Salalah Trading.

e) You also collected from the Sales Department the written agreements between the company and their customers about “no refund policy”. They were signed by both the customers and the manager.

**Required:

Evaluate the reliability of each of the documents above and identify the one that is considered the most reliable and least reliable.

Answer 1

Evidence Gathered	Reliable/ Least Reliable	Reason	Document
a) Your senior auditor assigned you to directly observe how a sale transaction is done in Salalah Trading. You were given three days to observe the sale transaction completely.	Reliable	Gives understanding of the process in the business entity. Helps to curb the changes in process is as per the management approval or not. Auditor works with objective for improvement in the business, gradually looks for chnages required to curb the extra cost incurred by the company or which are not cost effective.	Sale Invoice, PO Order
b)You need to get confirmation from customers if they really are paying their loans to Salalah Trading. The customers you have interviewed gave you their oral confirmation.	Least Reliable	Because Oral Confirmation cannot be documented, unless recorded in proper manner and flow. Here oral confirmation has been taken either on call or verbal communication. Which never helds as evidence.	List of customers interviewed
c) Your colleague, the auditor in-charge of physical examination of inventory of stocks gave their written report to you as part of audit evidence.	Reliable	Because, same is given by the team member and his report to be considered will be determined and obligation and responsibility will be also restricted to the limit of physical examiation only.	Report on Physical inventory submitted by Auditor in Charge
d)In the file of audit evidences,you also found the ratio analysis done by the previous auditors of Salalah Trading.	Least Reliable	Every Auditor has its own factors of risk assessment depends upon business and environment conditions and vary everytimes. Last time Ratio analysis is done sam eis need not required. They can never be determined as evidence.	Ratio Analysis Report
e) You also collected from the Sales Department the written agreements between the company and their customers about “no refund policy”. They were signed by both the customers and the manager.	Reliable	As the policy is signed by both the party company and customer both which means , both party accepted the transactions conditions absolutely and with consensus.	Signed Written Agreements