In auditing estimated costs to complete, which practice improves audit evidence?

• A. Third-party supplier quotes
• B. Industry gossip
• C. Management's verbal estimate only
• D. Historical internal memos

Answer: (B)

When evaluating estimated costs to complete, the strength of audit evidence comes from its independence and verifiability. External, third-party data provides an objective benchmark that you can compare against the estimate, such as prices, terms, and availability from suppliers or contractors. This external corroboration helps confirm whether the projected costs are reasonable and consistent with market rates, making the audit conclusion more reliable and less prone to bias or manipulation.

Industry gossip is informal and unverified, offering no solid basis for estimating costs. A verbal estimate from management lacks independent support and can reflect optimism or pressure to meet targets. Historical internal memos can be informative for understanding past assumptions, but they are internal and may not reflect current market conditions; without external corroboration, they don’t provide strong evidence of present reasonableness.

Therefore, obtaining third-party supplier quotes strengthens the audit evidence by providing independent, verifiable pricing to support the estimated costs to complete.