Question

How can internal documentation and external documentation be distinguished as forms of audit evidence, and what are three examples of each?

a) Internal documentation is generated within the company, while external documentation comes from third parties. Examples of internal documentation include invoices and purchase orders, while external documentation comprises bank statements and supplier confirmations.
b) Internal documentation involves information generated outside the organization, while external documentation is created within the company. Examples of internal documentation include financial statements and management reports, while external documentation includes employee timesheets and internal memos.
c) Internal documentation is prepared by external parties, while external documentation is produced by the company. Examples of internal documentation include payroll records and sales contracts, while external documentation consists of inventory records and internal audit reports.
d) Internal and external documentation are terms used interchangeably in auditing, and there is no distinction between the two in terms of audit evidence.

Answer 1

Internal documentation is produced within the company, such as invoices and purchase orders, while external documentation is sourced from third parties, including bank statements and supplier confirmations. Three examples of each type are provided to illustrate the differences in audit evidence.

Step-by-step explanation:

Internal documentation and external documentation can be distinguished as forms of audit evidence based on their source. Internal documentation is generated within the company being audited, and serves as evidence originating from the company's own activities and records. In contrast, external documentation comes from third parties outside the company and provides evidence from external sources.

Examples of Internal Documentation:

• Invoices issued by the company to its customers
• Purchase orders made by the company to its suppliers
• Employee payroll records maintained internally

Examples of External Documentation:

• Bank statements received from financial institutions
• Supplier confirmations and agreements
• Letters of credit from banks