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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.