Question

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 an individual providing the information);

D. degree of objectivity versus subjectivity; and E. Functioning system of internal controls.

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. The auditor considers the quantity and valuation of 1. An inventory of cement blocks; or 2. An inventory of precious gems.

d. The auditor tests two segments of the company. (1) In the first segment, the auditor assesses control risk as .8; or (2) In the second segment, the auditor assesses control risk as .1.

Answer 1

a.

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

reason :- B. auditor’s direct knowledge

b. The auditor considers evidence relating to

1. The estimate of bad debts expense

reason:- E. Functioning system of internal controls.

c.   The auditor considers the quantity and valuation of

2. An inventory of precious gems.

reason:- D. degree of objectivity versus subjectivity

d. The auditor tests two segments of the company.

(2) In the second segment, the auditor assesses control risk as .1.

reason:- D. degree of objectivity versus subjectivity

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Thanks & Regards

Aditya Aggarwal