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RELEVANCE OF AUDIT EVIDENCE
Auditing
Please explain the reason for that example (arrow marked)
Answers (4)
According to my view, While checking overstated accounts receivable.. Some Debtors maybe recorded at higher value than acutal value they're having. In that case.. If you check the every recorded Debtors entries you may get to know where we recorded higher value than the actuals if any. By the way you may find out reasons for overstatement. But if it's understated. Such testing would not be relevant since the recorded entries itself is not 100 percent. There maybe some omission or error in recording the Accounts receivables In such a case, you may have to vouch the documents related to credit supplies, Invoices Pending for payments to find out the reason for Understatement. This is according my view. Correct me kindly If i am wrong.
For over statement of accounts payable value or existence testing of acounts payable is sufficient audit procedure but for Understatement of accounts payable's value or existence testing of audit procedure is not relevant( it can't be sufficient app audit procedure)it is relevant when testing of unpaid invoices supplier statement is relevant audit procedure.. .. Understatement can be of two types. One recording less amount - here testing is relevant. Not recording at all - This cannot be identified by testing the amounts recorded.
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