Question

Which type of audit evidence involves the direct inspection or testing of tangible assets, and can be exemplified by physically examining items such as inventory or equipment?

a) Inquiry
b) Confirmation
c) Physical examination
d) Analytical procedures

Answer 1

In auditing, the physical examination is the type of evidence that involves direct inspection or testing of tangible assets, such as physically examining inventory or equipment.

Step-by-step explanation:

The type of audit evidence that involves the direct inspection or testing of tangible assets is known as physical examination. This method is exemplified by the auditor's action of physically examining items such as inventory or equipment. The direct inspection provides concrete and reliable audit evidence because it allows auditors to verify the existence and condition of the assets firsthand. Unlike inquiries or confirmations, which rely on information provided by others, physical examination allows the auditor to obtain audit evidence with their own senses.

Using the provided examples:

• Example 1 pertains to phenomena that are beyond the scope of physical examination, such as galaxies and particles that cannot be observed directly by humans.
• Example 2 illustrates a scenario where a simple claim can be verified by direct observation, such as confirming the presence of milk in the refrigerator.

Apart from physical examination, other types of audit evidence include inquiry, confirmation, and analytical procedures, but for addressing the direct inspection of assets, physical examination is the correct answer.

In response to Check Your Understanding:

1. B is not an essential feature of scientific explanations, as they are not strictly limited to the physical world.