Case Study:

XYZ Corporation, a multinational manufacturing company, is undergoing an external audit of its financial statements for the fiscal year ended December $31,2023.$ The audit team, led by a certified public accountant $($CPA$),$ is tasked with gathering sufficient and appropriate audit evidence to form an opinion on the company's financial statements.

During the audit process, the team utilizes various types of audit evidence to assess the reliability and accuracy of the financial information presented by XYZ Corporation. These types of evidence include:

Documentary Evidence: The audit team reviews invoices, contracts, bank statements, and other financial documents obtained directly from independent sources such as vendors, customers, and financial institutions. These documents provide tangible proof of transactions and are generally considered highly reliable.

Physical Evidence: In addition to financial documents, the audit team may inspect physical assets such as inventory, equipment, and property owned by XYZ Corporation. Physical verification ensures that the assets exist and are accurately recorded in the financial statements.

Analytical Procedures: The audit team performs analytical procedures to assess the reasonableness and consistency of financial data. This involves comparing current financial figures with historical data, industry benchmarks, and forecasts to identify any unusual trends or discrepancies that may require further investigation.

Oral Evidence: While oral representations from management and employees can provide valuable insights into the company's operations, they are considered less reliable than documentary evidence. Therefore, the audit team corroborates oral statements with other forms of evidence to ensure accuracy and completeness.

Electronic Evidence: In today's digital age, electronic records play a significant role in audit evidence. The audit team may analyze electronic data such as accounting software records, email communications, and digital transactions to verify the integrity and accuracy of financial information.

Question:

Based on the case study provided, which type of audit evidence is generally considered the most reliable?

A$)$ Oral representations from management

B$)$ Documentary evidence obtained from independent sources

C$)$ Physical evidence of inventory and assets

D$)$ Analytical procedures and financial ratios