The following information is available to Griffin & Fox, the auditors of Melba Inc.

Required:

For each of the following situations, discuss which source information would be considered of higher quality in terms of audit evidence. Ensure you support why a specific source of information would be considered higher quality.

Situation 1: To support the existence, completeness, and accuracy of the inventory, Melba Inc. provided its auditor with a summary of its inventory count. Griffin & Fox also sent a staff accountant to observe the inventory count.

Situation 2: The head of the legal department at Melba met with the partner of Griffin & Fox to discuss a lawsuit Melba is currently facing from one of its clients. The legal counsel of Melba has been involved with the case since it was first filed and has extensive knowledge of the case, so he provided a good estimate for the legal provision. Griffin & Fox also obtained a confirmation letter from Melba’s external counsel.

Situation 3: The control environment and internal controls at Melba have been assessed as strong for the current year. To assess the accuracy of the payroll expenses, Melba provided Griffin & Fox with an automated report detailing the various source deductions that are computed by the system when the payroll is processed. Griffin & Fox also did an overall analysis of the payroll deductions to ensure there were no large variances since the prior year.

Situation 4: To verify the accuracy of the sales, Griffin & Fox obtained a sample of sales invoices generated by Melba’s sales system. Griffin & Fox also looked at Melba’s sales ledger to trace certain sales.