In this chapter, several different kinds of audit evidence were identified. The following questions concern the relevance and reliability of audit evidence.

Required

a. Explain why confirmations are normally considered more reliable than inquiries of the client. Under what situations might the opposite hold true?

b. Give three examples of reliable evidence and three examples of less reliable evidence. What characteristics distinguish them?

c. Explain why physical inspection is considered strong, but limited, evidence. What knowledge about inventory should the auditor possess in order to make observation of inventory both relevant and reliable?

d. What characteristics must internal evidence have to cause the auditor to assess the evidence as reliable?

e. Explain why tests of details may be more relevant than analytical procedures.

f. Explain how analytical procedures might be more relevant to assessing the correctness of an account balance than would be tests of details. In formulating your answer, think in terms of particular account balances.

g. There is always tension between the cost of obtaining evidence and the risk of making an incorrect assessment of the fairness of the financial statements. Explain the relationship between cost, relevance, and reliability of information and the criteria auditors use to balance those three factors.

h. Identify three instances when an auditor is likely to use recalculation and reperformance as audit procedures in gathering audit evidence. Is an auditor-prepared spreadsheet a recalculation or an independent estimate of an account balance? Explain.