[Anonymous]

Hi There,

Getting little frustrated with AUD. Could anyone please chime in and help clarify the problem below ->

Which of the following procedures would provide the most reliable audit evidence?

A. Inquiries of the client’s internal audit staff held in private

B. Inspection of prenumbered client purchase orders filed in the vouchers payable department

C. Analytical procedures performed by the auditor on the entity’s trial balance

D. Inspection of bank statements obtained directly from the client’s financial institution

My answer – C

Correct Answer – D

I thought that the most reliable audit evidence comes directly from auditor followed by 3rd party generated evidence. Why is it the other way around?

[Anonymous]

A. Inquiries of the client’s internal audit staff held in private Oral evidence

B. Inspection of prenumbered client purchase orders filed in the vouchers payable department client prepared

C. Analytical procedures performed by the auditor on the entity’s trial balance analytical on client prepared (not recalculating or reperforming etc)

D. Inspection of bank statements obtained directly from the client’s financial institution 3rd party info

That's how I see it. It would be C if the auditor performed some sort of substantive procedure. Analytics are only as good as the underlying amounts most times (in this case it is client amounts)

[Anonymous]

I think cbones hit it just right, good question though.

Hierarchy of audit evidence:

1) Auditor's direct personal knowledge (observation, physical examination or recalculation)

2) External Evidence

3) Internal Evidence

4) Oral evidence/inquiry

[Anonymous]

Keep in mind following:

Evidence collected from outside sources are reliable than company inside sources.

Evidence collected directly by auditor is persuasive than indirectly (e.g. depending on internal auditor for important information, after considering judgement from internal control analysis and test of control)

[mt3130]

In the real world, external third party evidence is king. Remember than analytics are based upon numbers given to you by the client. Also, I've seen inventory observations go south, where different warehouses were counted on different days, and the company was moving stuff from a warehouse already counted into a warehouse not yet counted. Fraud happens a lot more than I would care to admit, whether its intentional or not. Sadly, most of the time, the fraud encountered is unintentional. I've had a client directly ask me to commit financial statement fraud, because they didn't understand what they were asking.

Recalculation works best when you have a known amount to based your recalc from. For example, you audit a private school where tuition is $20k per student, and the school has 200 students. If revenue isn't very very close to $4M, you start digging. You could even verify the tuition amount from a third party source as part of your AR confirmation.

REG - 90 (08/2014) - Study Time = 6 days
FAR - 89 (10/2014) - Study Time = 9 days
BEC - 83 (11/2014) - Study Time = 4 days
AUD - 89 (01/2015) - Study Time = 2 days

Final score released - 2/4/15
Application mailed - 2/5/15
Licensed CPA - 2/12/15

[Author]

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