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Audit evidence: Evaluate inquiry and oral evidence, limitati

1. Describe the factors that the auditor should consider in evaluating inquiry and oral evidence provided by client officers and employees?
2. Discuss the validity and limitations of inquiry and oral evidence?
3. Discuss the validity and limitations of ratio analysis in an audit.
4. Discuss the validity and limitations of the audit evidence provided by the procedure.

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1. Describe the factors that the auditor should consider in evaluating inquiry and oral evidence provided by client officers and employees?

Audit evidence is not all equal in persuasiveness or reliability. Inquiry and oral evidence, what the client tells you in response to questions about their business or what outsiders tell you about the client, is low quality evidence because it is indirect. Indirect evidence, such as what the client tells you or analytical reviews, are less reliable than direct evidence, such as observation, inspection, independent computations, or re-performing. Since the inquiry and oral evidence is less reliable, the auditor should verify what is told to them if they wish to rely on it as part of the basis for their audit conclusion. This is especially true when it comes to officers and employees.

Comments made by officers and employees are lower quality indirect evidence than comments made by outsider parties. The reason is that officers and employees have bias and motive for shading their responses to give the best possible view of the firm.
That is not to say that client inquiry is not extremely helpful to the auditors. ...

Solution Summary

Your tutorial is 629 words and two references and explains how direct and indirect evidence is treated differently in an audit and the validity and limitations of both.

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