Page 110 - CA Inter Audit PARAM

CA Ravi Taori
(E.g. a contemporaneously written record of a meeting is more reliable than a
subsequent oral representation of the matters discussed).

• Audit evidence provided by original documents is more reliable than audit evidence
provided by photocopies or facsimiles, or documents that have been filmed, digitised
or otherwise transformed into electronic form, the reliability of which may depend on
the controls over their preparation and maintenance.

• Audit evidence obtained directly by the auditor
(E.g. observation of the application of a control) is more reliable than audit
evidence obtained indirectly or by inference (for example, inquiry about the
application of a control).

• The reliability of audit evidence that is generated internally is increased when the
related controls, including those over its preparation and maintenance, imposed by the
entity are effective

• Applying the above, the degree of reliance which can be placed by the auditor on the
documentary audit evidence available in the present case will be considerably increased if the
xerox copies of account books and vouchers are certified to be true copies by the Income Tax
Department. If the tax authorities refuse to certify the same, the auditor should get the
certificate to this effect from the management of the company.

QNO— Reliability of Internally Generated Evidence New Course – (SM25)
500.09.50 Bhaskar CNO -SA500.140
A company has stipulated a control that reconciliations of its records showing quantitative details of its
property, plant and equipment are carried out at regular intervals with physical verification of such
items. The auditor has found that such reconciliations are being carried out as stipulated. Discuss,
whether above factor, increases reliability of other internally generated evidence within the company
relating to existence of such items.
Answer • The reliability of information to be used as audit evidence, and therefore of the audit evidence
itself, is influenced by its source and its nature, and the circumstances under which it is obtained,
including the controls over its preparation and maintenance where relevant.
• The reliability of audit evidence that is generated internally is increased when the related controls,
including those over its preparation and maintenance, imposed by the entity are effective.
• In the above case the management is carrying out reconciliations of items contained in Property,
Plant and Equipment records with physical verification of such items at regular intervals. It means
that controls in this regard have operated effectively

QNO Evaluating work of Management's Expert Old Course -- (P16M/M17R/N18M/N19R/N20E/M21R/
500.13 Bhaskar CNO SA500.160 N21M)
While conducting audit of a bank, you find that the bank has advanced loan for purchase of machinery on
the basis of valuation report prepared by a civil engineer. Will you approve the action taken by bank? Justify
the answer.

OR
“The management has obtained a certificate from an actuary regarding provision of gratuity payable to
employees”. Comment as an auditor.
Answer ➢ Using the Work of Management’s Expert:
• The Auditor while considering advances granted by bank for purchase of machinery has to
consider valuation report given by civil engineer to the bank.

• SA 500 “Audit Evidence” clearly states that when information to be used as audit evidence
has been prepared using the work of a management’s expert, the auditor shall, to the extent
necessary, having regard to the significance of that expert’s work for the auditor’s purposes,
• Evaluate the competence, capabilities and objectivity of that expert;
• Obtain an understanding of the work of that expert; and

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