ACCA Advanced Audit and Assurance (AAA) Practice Exam

Under which condition is evidence from an entity's records considered more reliable?

1. When the records are incomplete

2. When the related control system is ineffective

3. When the related control system operates effectively

4. When external evidence is unavailable

The correct answer is: When the related control system operates effectively

Evidence from an entity's records is considered more reliable when the related control system operates effectively. This is because effective internal controls contribute to the accuracy and completeness of the financial records. When controls are functioning well, they help ensure that the transactions are recorded accurately and that the records are maintained properly. This reliability stems from the assurance that there are processes in place to prevent and detect errors or fraud, thereby increasing confidence in the data derived from those records. In contrast, if the records are incomplete, this reduces the reliability of the evidence as it may not present a full and accurate picture of the entity’s financial position. An ineffective control system suggests that there may be weaknesses that can lead to mistakes or fraud, thus further diminishing the trust in the evidence generated from the records. Lastly, the unavailability of external evidence does not inherently improve the reliability of internal records; instead, it highlights a gap in verification that could undermine confidence in the internal data.