7-32 (OBJECTIVES 7-3, 7-4) The following are nine situations, each containing two means of accumulating evidence:
1. Confirm receivables with consumers versus confirming accounts receivable with
business organizations.
2. Physically examine 3-inch steel plates versus examining electronic parts.
3. Examine duplicate sales invoices when several competent people are checking each
other’s work versus examining documents prepared by a competent person on a one-
person staff.
4. Physically examine inventory of parts for the number of units on hand versus examining them for the likelihood of inventory being obsolete.
5. Discuss the likelihood and amount of loss in a lawsuit against the client with client’s
in-house legal counsel versus discussion with the CPA firm’s own legal counsel.
6. Confirm the oil and gas reserves with a geologist specializing in oil and gas versus
confirming a bank balance.
7. Confirm a bank balance versus examining the client’s bank statements.
8. Physically count the client’s inventory held by an independent party versus confirming the count with an independent party.
9. Obtain a physical inventory count from the company president versus physically
counting the client’s inventory.
a. Identify the six factors that determine the reliability of evidence.
b. For each of the nine situations, state whether the first or second type of evidence is
more reliable.
c. For each situation, state which of the six factors affected the reliability of the evidence.
