The auditor seldom has the luxury of obtaining

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Unformatted text preview: nce that the management assertions can be relied upon for each significant account and disclosure, the auditor has reasonable assurance that the financial statements are fairly presented. In obtaining and evaluating the appropriateness of audit evidence, the auditor is concerned with the relevance and reliability of the evidence. Relevance refers to whether the evidence relates to the specific management assertion being tested. Reliability refers to the diagnosticity of the evidence. In other words, can a particular type of evidence be relied upon to signal the true state of the account balance or assertion being examined? Using the house inspection example, inspecting the foundation of a house would not give us relevant evidence about whether the roof leaks. Likewise, the seller’s opinion of the home’s roof would not be as reliable as that of the inspector, because the seller has an incentive to deceive the buyer. The auditor seldom has the luxury of obtaining completely convincing evidence about the true state of a particular asserti...
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This note was uploaded on 12/08/2012 for the course ACCT 564 at Washington University in St. Louis.

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