Question

I.  Evidence should be relevant and reliable to be appropriate.  Define the terms “Relevance” and

         “Reliability”.

   II.  For each situation presented below, indicate which means of gathering evidence would be

         considered more reliable (#1 or #2) AND indicate a reason from the following list:

      A. Independent source of the information (Independence of provider);

      B. auditor’s direct knowledge;

      C. Knowledgeable source (qualifications of individual providing the information);

      D. degree of objectivity versus subjectivity; and

      E. Functioning system of internal controls.

   DO NOT DISCUSS your answer.  CHOOSE ONLY ONE LETTER.

a. 1 The auditor relies on an analysis prepared by the controller of gross margin to sales for the current

       and prior periods.; or (2)  The auditor calculates gross margin to sales and compares to similar data

       for prior periods .

b.  The auditor considers evidence relating to 1. The estimate of bad debts expense; or 2. The cost of

      land acquired five years ago.

c.  Evidence involving audit judgement is considered by a member of the audit team.  The individual is

     1.  An intern; or 2.  The audit senior assigned to the engagement.

d. Auditor tests two segments of the company.  (1) In the first segment, the auditor assesses control risk at .20; or (2) In the second segment, the auditor assesses control risk at .40.

Answer 1