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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence

CA Anil is auditing Bharat Components Ltd. The inventory valuation records show a material figure supported only by management's oral explanations to the auditor's inquiries on obsolescence and on operation of the stock-count controls. Which conclusion is correct under SA 500?

Inquiry alone ordinarily does not give sufficient audit evidence of the absence of a material misstatement at assertion level, nor of operating effectiveness of controls. The auditor should combine it with procedures such as inspection, observation, recalculation or confirmation, rather than disregard it.

  1. AInquiry alone ordinarily does not provide sufficient audit evidence of the absence of a material misstatement or of the operating effectiveness of controlsCorrect
  2. BInquiry is sufficient where management is long-standing and cooperative
  3. CInquiry is sufficient evidence for controls but not for balances
  4. DInquiry is not an audit procedure and must be disregarded entirely

Explanation

SA 500 says inquiry may provide important evidence and even reveal misstatements, but alone ordinarily does not give sufficient evidence of absence of material misstatement at assertion level or of operating effectiveness of controls. Option on controls only is wrong because the standard covers both. Inquiry is not disregarded; it is combined with other procedures.

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