Problem:
During the course of an audit, the auditor examines a wide variety of documentation. Listed below are some forms of documentary evidence and the sources from which they are obtained.
- Bank statement sent directly to the auditor by the bank.
- Creditor monthly statement obtained from client's files.
- Vouchers in client's unpaid voucher file.
- Duplicate sales invoices in filled order file.
- Time tickets filed in payroll department.
- Credit memo in customer's file.
- Material requisitions filed in storeroom.
- Bank statement in client's files.
- Management working papers in making accounting estimates.
- Paid checks returned with bank statement in (1) above.
- Letter in customer file from collection agency on collectibility of balance.
- Memo in customer file from treasurer authorizing the write-off of the account.
Required
Question 1: Classify the evidence by source into one of four categories: (1) directly from outsiders, (2) indirectly from outsiders, (3) internal but validated externally, and (4) entirely internal.
Question 2: Comment on the reliability of the four sources of documentary evidence.
Note: Please show how you came up with the solution.