Question

In: Accounting

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

Assume that you are a newly appointed junior auditor in Delloite, 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 Sohar Trading and see if they are reliable or not based on ISA 500. The
following are the evidences gathered in various forms:
a) One auditor from your team sent letters to customers to confirm their payment to Sohar
Trading. Today, you received back the letter from the customers with their confirmation and
signature.
b) You are analyzing the cash balance and bank balance of the company. You have prepared
bank reconciliation to see where the difference on cash balance is. After you finished
analyzing, you include the bank reconciliation in your audit evidence file.
c) One key official sent an email to the audit team as a reply to your inquiry about the
company’s building construction.
d) The bookkeeper submitted to the audit team the original official receipt as support to the
company’s payment of the furniture purchased.
e) The accountant gave verbal confirmation to your inquiry about the suppliers dealing with the
company.
Required:
Evaluate the reliability of each of the documents above and identify the one that is considered the
most reliable and least reliable.

Solutions

Expert Solution

As an Auditor, one should obtain sufficient appropriate audit evidence to be able
to draw reasonable conclusions on which to base the audit opinion. The evidence that prepares by auditors themselves are more reliable than the one that prepares by or obtains from the client. For example, the bank reconciliation that prepares by the auditor is more reliable than the bank reconciliation prepared by the accountant.

a) Here in the above case of Sohar Trading, the confirmation and signature received from the customers towards the payment can be moderately reliable evidence but only in certain instances and should be post Cash and Bank reconciliation. However such type of Audit evidence can be treated as most reliable when there is an deviation observed pertaining to specific transactions while performing the Bank Reconciliation.

b) Analysing Cash and Bank Balances may constitute the significant proportion of the total assets for Sohar Trading. So the crucial features of Cash and bank balances which has a significant impact on the related audit procedures is that these assets are highly prone to misappropriation, misapplication and other forms of fraud. Hence vetting the cash balance and bank balance reconciliation can be the most reliable document of evidence in any audit situations. The Auditor should particularly highlight the sufficient appropriate evidence with respect to following assertions Existence (that recorded cash and bank balances exist
as at the year-end), Rights and Obligations (that recorded cash and bank balances represent the assets of the entity) and Completeness (that there are no unrecorded cash and bank
balances)

c) The email sent to the audit as a reply to the inquiry about the Company's Building construction can be treated as the reliable document of evidence wherein there are any queries related to the addition to the fixed assets of the company are required to be obtained.

d) Here in this case, instead of acquiring the original official receipt towards the payment of the purchased furniture, one can obviously ask for the copy or scan of the same original receipt and treated as the reliable document of evidence.

e) The verbal confirmation by the Accountant to the inquiry of about the suppliers dealing with the company will be the most least reliable Audit evidence. Although it may treated as reliable when confirmed in written form.


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