Final answer:
The audit evidence types are physical examination, confirmation, inquiry, and recalculation. These methods are crucial for auditors in obtaining reliable evidence regarding different aspects of a company's financial statements.
Step-by-step explanation:
The given activity is related to different types of audit evidence used in the field of accounting and auditing. The classification of these activities are as follows:
- Physical examination: This involves the auditor's inspection or count of a tangible asset. This is the most convincing type of audit evidence because it is obtained directly by the auditor.
- Confirmation: This type of evidence is obtained as a direct written response from a third party verifying the accuracy of information that was requested by the auditor.
- Inquiry: This is evidence collected through seeking information from knowledgeable persons inside or outside the entity.
- Recalculation: This refers to checking the mathematical accuracy of documents or records. It is a verification of mathematical correctness.
Examples of these in a practical scenario could be:
- Physical examination can occur when auditors count cash on hand during a company audit.
- Confirmation may happen when an auditor receives a bank confirmation letter verifying the client's cash balances at the year-end.
- Inquiry might involve discussing with management about the procedure for recording sales.
- Recalculation could be the auditor re-performing the client's year-end closing process to ensure the financial statements have been prepared correctly.