Conflicting Evidence, Essay Example

Confirmations of balances from clients are more reliable as compared to the management statement regarding balance in that, it corroborates the latter in case of audit or verification. Management usually asserts that each item on the financial statements exists, that it occurred and that  data is complete, accurate, and fully disclosed. The companies will be asked to verify data, and balances, in the statements such as account receivables.  According to the Association for Professional CPAs in United States (AICPA), there are sets of accepted auditing standards required during auditing. These are gathering audit evidence for verification on the affirmations made on the financial statement. The auditor will then use confirmation to audit the evidence provided to know whether the data to be audited is recorded accurately. The customer will then confirm the accounts receivable.

Confirmation is the process by which auditors use to obtain audit evidence from third parties. This process is not complete until the third party in question gives  feedback on the financial statement; this can either be authenticating or contradicting the assertions made. Confirmations can be positive or negative. A positive confirmation from the third party validates the existence declaration in the statements of finance. Accounts receivable confirmations are very important in verifying the existence assertions than completeness according to the auditors’ standards.

Auditor count of inventory items is more reliable than client count of inventory items. This is because the auditor will have a direct opportunity to verify the real existence of audit item at the time of the audit. The Auditor chooses items in the records in random and verifies their existence by means of the physical count of the selected items. This will allow the auditor to know the state of items at the audit period, in terms of dilapidation and current quality, unlike the clients’ count of inventory items. The auditor will be able to detect the discrepancies between the items in the possession of the company and items in the records of the company and get the correct position. The auditor will also be able to get audit evidence when he undertakes the physical count.

Vendor invoices are more reliable than client journal printout, since expenses are recognized when they are incurred and not necessarily when they are paid. Prepaid expenses are treated as assets, and they may appear in the client journal printout hence, distorting the expenses incurred during the period. The auditor can also be able to select invoices and ask to see all the paper work related to the transaction. This includes the actual verification that the vendor exists. This would help to get the actual completeness of expense recognition. The vendor invoices will allow the auditor to know the actual time the transaction took place. This will allow the auditor to know whether it has to be recognized at that period. It will also provide the auditor with the opportunity of verifying the accuracy of the data by comparing it with the records of the company, unlike the client journal printout.

The purchase contract and auditor recalculation of depreciation is more reliable than the client depreciation schedule. This is due to the fact that the company might use a depreciation method that does not reflect the true valuation of the fixed assets of the company. The company may under-value or over-value their fixed assets, and the auditor has to recalculate depreciation using the purchase contract to come up with a more reliable valuation, especially in cases where there is reason to believe that the valuation of the company cannot be relied upon fully. The recalculated depreciation will be used to compare it with the company’s calculations in order to determine the accuracy and to detect discrepancies.

A good audit depreciation schedule should include the asset book value, salvage value and the useful life. Additionally, it should contain the property of the company that is decreasing in value, as well as, the company’s depreciation style. The asset book value should contain all costs related to the acquisition of the asset. The salvage value should be the price the asset would fetch in the open market. The useful life is the expected useful usage of the asset before it becomes obsolete. The schedule should be precise and simple to understand by the users of the information. Furthermore, it should also contain information that the accountant has altered during the recalculation and any discrepancies detected and corrective measures undertaken.