Evaluating the Competence and Reliability of Audit Evidence in Public Accounting

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Evaluating the Competence and Reliability of Audit Evidence in PublicAccountingWeek 2–DQ 2The third generally accepted standard of audit fieldwork requires that auditors obtainsufficient, competent audit evidence to afford a reasonable basis for an opinionregarding the financial statements under examination. In considering whatconstitutes sufficient, competent audit evidence, a distinction should be made betweenunderlying accounting data and all corroborating information available to theauditor. What presumptions can be made about the following?•The relative competence of evidence obtained from external and internalsources.•The role of internal control with respect to internal evidence produced by aclient’s data processing system.•The relative persuasiveness of auditor observation and recalculation evidencecompared to external, external-internal, and internal documentary evidence.Response #1Relative competence of evidence has to do with the measure of evidence’s quality(reliability). Evidence must be relevant to the assertion to be considered competent. Putdifferently, evidence must have logical precise relevance to management’s assertions in thefinancial statements. In regard to reliability, evidence must be considered worthy of trust.Trustworthiness may be hard to determine from external sources if the source is not alertand fully informed. On the other hand, external sources can be more reliable some times aswell, such as in the case of bank statements compared to documents provided bymanagement. In the role of internal control with respect to internal evidence, suchevidence produce by a client’s data processing system would be considered less reliableevidence if internal control were considered ineffective. On the contrary, if internal control

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