CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence
Auditor CA Mehta is testing the existence of a significant bank loan balance of Sundaram Foods Ltd. Management says the lender's confirmation is unnecessary because the loan agreement is in the file. The auditor has assessed a significant risk of material misstatement. Which action is most consistent with SA 330 and SA 505 as quoted in the text?
The auditor should place more emphasis on evidence obtained directly from the lender, such as an external confirmation. SA 330 requires more persuasive evidence for higher assessed risk, and confirmations provide the high reliability needed for significant risks, whereas internal documents or inquiry alone are not adequate.
- AAccept the loan agreement alone, since it is documentary evidence kept by the entity
- BRely on the finance manager's oral assurance, as inquiry is sufficient for significant risks
- CPlace more emphasis on evidence obtained directly from the lender, as external confirmation can give the high reliability needed for significant risksCorrect
- DReduce the quantity of evidence because the loan agreement is of high quality
Explanation
SA 330 requires more persuasive evidence as assessed risk rises, and the auditor may place more emphasis on evidence directly from third parties. External confirmation can supply the high reliability needed for significant risks. Inquiry alone, per SA 500, ordinarily does not give sufficient evidence.
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