The following situations present the auditor with alternative sources of evidence regarding a particular assertion.
a. For each of the following situations, identify the assertion(s) the auditor is most likely testing with the procedure.
b. For each situation, identify which of the two sources presents the most persuasive evidence and briefly indicate the rationale for your answer.
Sources of Audit Evidence
1. Confirming accounts receivable with business organizations vs. confirming receivables with consumers.
2. Visually inspecting an inventory of electronic components vs. performing an inventory turnover and sales analysis by products and product lines.
3. Observing the counting of a clientââ?¬â?¢s year-end physical inventory vs. confirming the inventory held at an independent warehouse by requesting a confirmation from the owner of the warehouse.
4. Confirming a year-end bank balance with the clientââ?¬â?¢s banking institution vs. reviewing the clientââ?¬â?¢s year-end bank statement vs. having a cutoff bank statement as of January 20 for all activity from December 31 to January 20 sent to the auditor.
5. Observing the clientââ?¬â?¢s inventory composed primarily of sophisticated radar detectors and similar electronic equipment vs. observing the clientââ?¬â?¢s inventory composed primarily of sheet metal.
6. Confirming the clientââ?¬â?¢s year-end bank balance with the bank vs. confirming the potential loss due to a lawsuit with the clientââ?¬â?¢s outside legal counsel.
7. Testing the clientââ?¬â?¢s estimate of warranty liability by obtaining a copy of the clientââ?¬â?¢s spreadsheet used for calculating the liability and determining the accuracy of the spreadsheetââ?¬â?¢s logic by entering new data into the spreadsheet and independently calculating the result vs. developing an independent spreadsheet and using regression analysis to develop an independent estimate of the warranty liability using client sales and warranty return data.
8. Reviewing all payments made to vendors and suppliers after year end to determine if they were properly recorded as accounts payable vs. requesting vendor statements at year end for all significant vendors from whom the client made purchases during the year.
9. For a financial institution, testing the organizationââ?¬â?¢s controls for recording customer savings deposits, including the existence of an independent department to explore any inquiries by customers vs. confirming year-end savings account balances with customers.
10. For a financial institution, testing the organizationââ?¬â?¢s controls for making and recording loans vs. confirming year-end loan balances directly with customers.
Your tutorial is attached in Excel (in table format) showing the ...
Your tutorial is attached in Excel (in table format) showing the assertions, the best evidence, and a reason for selecting the better evidence. Also included is a general guidelines for audit evidence reliability which helps to select the "better" from the set.