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CA Intermediate · Auditing and Ethics · Audit Evidence

An auditor of Narmada Foods Ltd receives a written reply to an external confirmation request for a debtor balance. The reply was sent by email from a personal email address that does not match the debtor's known domain. What is the most appropriate response under SA 505?

The auditor should treat the mismatched email source as a reliability doubt and perform further procedures, such as verifying the sender with the debtor and re-obtaining the confirmation through a proper channel. Accepting it just because it agrees with the books is wrong under SA 505.

  1. ATreat the reply as reliable since it agrees with the book balance
  2. BTreat it as a doubt about reliability and perform further procedures, such as verifying the source and, if needed, obtaining direct confirmation through the proper channelCorrect
  3. CIgnore the reply and conclude the balance is misstated
  4. DTreat the debtor as having not responded and immediately issue an adverse opinion

Explanation

Under SA 505, if there are doubts about the reliability of a response, the auditor obtains further audit evidence to resolve them, for example by contacting the confirming party to verify the source. Agreement with the books does not cure doubt about authenticity. Concluding misstatement or giving an adverse opinion at once is premature.

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