Question

Data Reliability: Evaluating data reliability is a critical part of the audit process.

Explain the differences among the following in terms of reliability::

1. Data from internal vs. external sources

2. Written data vs. verbal conversation records

3. Data obtained from direct vs. indirect methods

4. Data obtained from original documents versus electronic

Answer 1

1. The main difference between the internal and external sources of data is from where they are originated.

The data originated in internal sources are generally created and retained within the company and doesnot goes to the outside party. For example: Daily cash report, duplicate sales invoices, inventory reports.

The data originated in external sources are generally obtained outside the client's organisation. For example: Bank statement, Insurance policies.

However, data from external sources are considered to be more reliable than the internal sources.

2. The written data is more reliable since the auditor can perform his duties based on authentic documentation. On the other hand, in case of verbal communication the proper documents and proofs of daily financial activities are not availble making the verbal communicaton the weakest source of data.

3. Evidences obtained through direct methods in auditing is more reiable than the indirect methods.

Any documents directly obtained by the auditor from a knowledgeable source will provide better resutls in auditing process.

4. Evidences obtained from original documents will be more reliable than  the documnets which are in electronic form for example evidence like documents which have been filmed or digitalised, photocopies etc.