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CMA Final · Cost and Management Audit · Cost Auditing and Assurance Standards

A cost auditor's team member says: 'Management is honest and has integrity, so a signed representation letter on the allocation of overheads is enough evidence for the cost statements.' Under SCA 103, the best response is that:

Such reliance is not acceptable. Professional skepticism requires the cost auditor not to settle for less-than-persuasive evidence because management seems honest, and management representations cannot replace sufficient appropriate audit evidence needed to support the opinion on the cost statements.

  1. Ait is acceptable if the representation is signed by those charged with governance
  2. Bit is acceptable if the amount involved is below the materiality level of the whole company
  3. Cit is acceptable, because reasonable assurance relies chiefly on management's integrity
  4. Dit is not acceptable, as representations from management are no substitute for sufficient appropriate audit evidenceCorrect

Explanation

SCA 103 on professional skepticism says the auditor should not be satisfied with less-than-persuasive evidence based on a belief that management is honest, and that management representations do not substitute for sufficient appropriate evidence. The other options wrongly allow reliance on representations.

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