Question

Inspection of records and documents relates to the auditor's examination of entity accounting records and other information. One issue that affects the reliability of documentary evidence is whether the documents are internal or external. Following are examples of documentary evidence: Required: a & b. Classify each document as internal or external evidence and as to its reliability (high, moderate, or low). Type Reliability Documentary evidence 1. Duplicate copies of sales invoices. 2. Purchase orders. 3. Bank statements. 4. Remittance advices. 5. Vendors' invoices. 6. Materials requisition forms. 7. Overhead cost allocation sheets. 8. Shipping documents. 9. Payroll checks. 10. Long-term debt agreements. High because it comes from an external party. High if internal control is excellent, moderate to low otherwise. High to moderate because the document has been circulated to a party outside the entity.

Type would be internal or External

Answer 1

Documentary evidence Type Reliability 1. Duplicate copies of sales invoices Internal High if internal control is excellent, moderate to low otherwise 2. Purchase orders Internal High if internal control is excellent, moderate to low otherwise 3. Bank statements External High because it comes from an external party 4. Remittance advices External High to moderate because the document has been circulated to a party outside the entity 5. Vendors' invoices External High because it comes from an external party 6. Materials requisition forms Internal High if internal control is excellent, moderate to low otherwise 7. Overhead cost allocation sheets Internal High if internal control is excellent, moderate to low otherwise 8. Shipping documents Internal High if internal control is excellent, moderate to low otherwise 9. Payroll checks Internal High to moderate because the document has been circulated to a party outside the entity 10. Long-term debt agreements External High because it comes from an external party