Reliability and cost of evidence gathering techniques. The financial statements of Utgard Company of Drammen, Norway, a new client, indicate that large amounts of notes payable to banks were paid off during the period under audit. The auditor, Kristinge Korsvold, Statautoriseret Revisor, also notices that one customer’s account is much larger than the rest, and therefore decides to examine the evidence supporting this account. 

Required:

A. Evaluate the reliability of each of the following types of evidence supporting these transactions for:

Notes payable:

A. Debit entries in the notes payable account.

B. Entries in the cheque register.

C. Paid cheque.

D. Notes payable bearing bank perforation stamp PAID and the date of payment.

E. Statement by client’s treasurer that notes had been paid at maturity.

F. Letter received by auditors directly from bank stating that no indebtedness on part of client existed as of the balance sheet date.

Customer account:

G. Computer printout from accounts receivable subsidiary ledger.

H. Copies of sales invoices in amount of the receivable.

I. Purchase order received from customer.

J. Shipping document describing the articles sold.

K. Letter received by client from customer acknowledging the correctness of the receivable in the amount shown on client’s accounting records.

L. Letter received by auditors directly from customer acknowledging the correctness of the amount shown as receivable on client’s accounting records.