I.  Evidence should be relevant and reliable to be appropriate.  Define the terms “Reliability” and “Relevant”.

II.  For each situation presented below, indicate which means of gathering evidence would be considered more reliable (#1 or #2) AND indicate a reason from the following list:

A. Independent source of the information (Independence of provider);

B. auditor’s direct knowledge;

C. Knowledgeable source (qualifications of individual providing the information);

D. degree of objectivity versus subjectivity; and

E. Functioning system of internal controls.

DO NOT DISCUSS your answer.  CHOOSE ONLY ONE LETTER.

a. (1) The auditor calculates gross margin to sales and compares to similar data for prior periods; or

(2) The auditor relies on an analysis prepared by the controller of gross margin to sales for the current and prior periods.

 b. 1. The auditor considers the valuation of land; or, 2. The auditor considers the valuation of Accounts Receivable.

 c.  As a test of accounts receivable, (1) the auditor reviews a confirmation received directly from the customer of the company being audited, or 2. The auditor compares customer balances for the year under audit to respective customer balances for previous years.

d. Auditor tests two segments of the company.  (1) In the first segment, employees check another employee’s work; or (2) In the second segment, no checks the work of employees.