Question

asap clearly pls

Chapter 5 1. Evidence should be relevant and reliable to be appropriate. Define the terms "Relevance" and "Reliability" II. For each situation presented below, indicate which means of gathering evidence would be considered more reliable (#1 or #2) AND indicate a reason from the following list: A. Independent source of the information (Independence of provider); B. auditor's direct knowledge; C. Knowledgeable source (qualifications of individual providing the information); D. degree of objectivity versus subjectivity; and E. Functioning system of internal controls. DO NOT DISCUSS your answer. CHOOSE ONLY ONE LETTER. a. The auditor considers evidence relating to 1. The cost of land acquired five years ago; or 2.The estimate of bad debts expense. b. 1 The auditor relies on an analysis prepared by the controller of gross margin to sales for the current and prior periods.; or (2) The auditor calculates gross margin to sales and compares to similar data for prior periods. C. Evidence involving audit judgement is considered by a member of the audit team. The individual is 1. The audit senior assigned to the engagement; or 2. An intern. d. The auditor considers the quantity and valuation of 1. An inventory of cement blocks; or 2. An inventory of precious gems. e. Auditor tests two segments of the company. (1) In the first segment, employees check another employee's work; or (2) In the second segment, no one checks the work of employees.

Answer 1

I. Relevance : The relevance of an audit evidence refers to its relationship with the objective of the control being tested or the substantive procedure being performed or the assertion being tested. Relevance of audit evidence is dependent on following factors :

a) Timing of test/audit procedure being performed.

b) Design of the audit procedure being performed

Reliability : Reliability of an audit evidence refers to the source & nature of the evidences and the circumstances under which such evidence has been obtained. Audit evidence can be less reliable or more reliable depending on several factors such as :

-> Evidence obtained from external sources is more reliable than internal sources.

-> Written evidence is much more reliable than oral evidence.

-> Evidence obtained directly from a third person is more reliable than evidence obtained from the client itself.

II. Which means of gathering evidence is more reliable in the given situations has been answered in the table below :

S. No.	More reliable Evidence (#1 or #2)	Reason
a	1. The cost of land acquired five years ago	A. Independent source of the information
b	2. The auditor calculates gross margin to sales and comapres to similar data for prior periods	B. auditor's direct knowledge
c	1. The audit senior assigned to engagement	C. Knowledgeable source
d	1. An inventory of cement blocks	D. degree of objectivity versus subjectivity
e	1. Employees check each another's work	E. functioning of system of internal controls