Question

Assume that you are a newly appointed junior auditor in Grant Thornton, 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 Nizwa Trading and see if they are reliable or not based on ISA
500. The following are the evidences gathered in various forms:
a) Included on file is the letter of confirmation of cash balance received from the company’s
bank, Bank Nizwa. The letter has the proper letter head, addressed to your audit firm and
originally signed by the bank manager.
b) Your team has established that internal control of Nizwa Trading is very effective. System is
computerized, not manually done, and all controls are in place. When you ask for copy of the
sales invoice, the staff in-charge gave them to you immediately on the same day in electronic
form.
c) Original copy of the building insurance have been provided. However, when you make
further inquiries, the insurance company is unknown (never heard of before) or not even
included in the list of insurance companies in Oman. You highly doubt the authenticity of the
insurance company.
d) Upon confirmation of the company’s receivable account, management readily gave their oral
confirmation that the accounts receivable are fairly presented.
e) Also included in the file of audit evidences are photocopies of employment contracts
obtained from the Human Resource Department.
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

A. The reliability on the letter of confirmation can be made. Since the letter of confirmation of cash balance is received from Company Bank, Bank Nizwa. The letter is completer in respect of its originality. I.e. on proper letter head, addressed to the firm and also originally signed by the bank manager.

B. The reliability on the data from computerized source is always higher than the manual one. As the manual one can easily be tampered or forged. However, data in electronic form once recorded, then tough to manipulate. Hence due to strong internal control in computerised system, the reliability on the sales document can be made.

C. This document is high doubt to make reliability on its originality. Reason being on verification, it come to known that the insurance company in never in the list of insurance companies in Oman. It is probable that company had made forged insurance policies and hence reliability on such document cab ne doubted.

D. It will be more reliable if the written confirmation is given for the balance receivable account by the company. As oral confirmation is the least source of reliability while auditing. At least, management written representation letter need to be obtained by the auditor.

E. Reliance can be made on the photocopies of employment contracts since it is directly received from the HR Department. However on test check basis, some contract copies can be cross verified with original one.

The most reliable document is written confirmation duly signed on letter of their company I.e . the (A) case. The least reliable document will be company’s account receivable balances since only oral communication had been received from the management and not even written communication i.e. (D) case.