Question

Corroboratory evidence inspected by an auditor, such as the Kathmandu audit examined in Assignment 2, could include:

(a) A letter from the bank confirming Kathmandu’s bank balance, which is sent directly by the bank to the auditor.

(b) The monthly statement sent by Kathmandu creditors to Kathmandu and filed in the Kathmandu creditors ledger files.

(c) Copies of sales invoices sent to Kathmandu customers retained in the Kathmandu sales and debtors ledger files.

(d) Delivery notes sent with goods purchased online to Kathmandu customers that are signed as received by the customer and returned to Kathmandu by the courier company contracted to deliver the goods.

(e) Title deeds for properties owned by Kathmandu, which are held by the bank as security for bank loans.

(f) Bank statements retained in Kathmandu treasury files.

(g) A file of authorised documentation supporting Kathmandu computer journal entries filed in month order, rather than by journal entry computer reference, in the Kathmandu secured documents room.

(h) A board minute authorising purchase of 20 new motor vehicles for Kathmandu store managers.

Required: For each of (a)–(h), comment on its reliability as audit evidence.

Answer 1

(a) The audit evidence which is obtained is reliable as banks is acting as an external source and audit evidences obtained from external sources are more reliable than the evidences obtained from the internal sources.

(b) The monthly statement of creditor filed in the clients file is reliable as this will act as an evidence obtained by client. In this case evidence is obtained directly by client.

(c) The copies of sales invoices shall not be act as an audit evidence as this is generated by client and there may be case that the client may have reverse the sales later on.

(d) Delivery notes received back from customers after being signed by them will act as an audit evidence as this will be the audit evidence obtained from external sources and evidences obtained from external sources are more reliable than those obtained from internal sources.

(e) Title deeds of properties will act as an valid audit evidence and moreover bank has also granted loan on this property so bank will have done all the legal requirements as to the ownership of the property.

(f) Bank statements retained by client is a reliable audit evidence as this is an evidence obtained from external sources by client but we can use these for our purposes.

(g) This will depend on the internal control of the organisation. If internal control is as per standards, then file of authorised documentation will be a good audit evidence otherwise we cannot rely.

(h) Board minutes authorising purchase of 20 new motor vehicles will not act as an audit evidence but if with these minutes if purchase invoices are also produced then these are sufficient. Moreover, we can physically verify these assets.