Assume that you are a newly appointed junior auditor
in Ernst & Young, an auditing firm. After a 3-
month rigorous training on the job, you have been awarded the
certificate of completion and is nowready to embark on your very
first assignment. Today, your first job was to evaluate the
audit
evidence gathered by your team from Shinas Trading and see if they
are reliable or not based on ISA
500. The following are the evidences gathered in various
forms:
a) You have been analyzing the cash balance of Shinas Trading and
comparing it with the bank
balance. To properly analyze the difference, you asked for the bank
reconciliation prepared
by the bookkeeper. She immediately gave it to you properly signed
by the staff.
b) Your colleague, the auditor in-charge of observing the physical
count of inventory, gave to
you their team’s report on their observation. You immediately filed
it in the audit evidence
file.
c) During interview with the managing director of the company, she
gave verbal confirmation
that Shinas Trading has a long-term loan from Bank Muscat and
payments are updated.
d) Shinas Trading has a computerized system in its purchasing
process. This is an indication of a
good internal control system. Part of the audit evidences filed are
electronic copies of the
purchase order forms of the company.
e) Also filed in the audit evidence folder are a complete set of
photocopies of payroll sheets
(salary sheets). Employee signatures contained in the sheets are
also photocopies of the
original.
Required:
Evaluate the reliability of each of the documents above and
identify the one that is considered the
most reliable and least reliable.
As per Appendix A of ISA 500 Audit Evidence, Reliability of Audit Evidence is explained as under :
In Case A : Obtained within the entity-Less Reliable (Refer
point 1)
In Case B : Inventory count observed directly -More Reliable(Refer
point 2) {Most Reliable}
In Case C : Oral Evidence-Less Reliable(Refer point 4)
{Least Reliable}
In Case D : Internal Control is effective and documentary form-More
Reliable(Refer point 3 & 4)
In Case E : Obtained photocopies-Less Reliable(Refer point 5)
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