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.