Question 4 (20 marks)

During an examination of financial statements, an auditor verifies managements assertions ie.existence, completeness, rights, valuation etc. In doing so, the auditor must choose the quality and quantity of evidence, and the timing of the tests to be performed.

Required: (a) Select and justify your choice as to which of the followings are considered higher quality audit evidence: (i) Bank confirmation versus bank statement. (ii) Observation of inventory count on 31 October 2019 versus observation of inventory count on 31 December 2019 for a company with a 31 December year end.

(b) Under what conditions (if any) would a large sample of low-quality evidence be persuasive to an auditor?

(c) Describe the highest quality form(s) of evidence an auditor would normally obtain to verify each of the following assertions:

(i)ownership of share certificates held in a safe deposit box

(II) valuation of gross trade accounts receivable

(III) completeness of additions of fixed assets

(iv) validity of trade accounts payable

(v) valuation of finished goods inventory