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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

CA Rohan is auditing Bharat Steels Ltd. He plans the audit but, to save time, intends to rely entirely on management's written representation about the completeness of related-party disclosures and perform no other procedures, since the CFO is a respected senior professional. Under SA 200, which statement is correct?

Rohan should not rely only on the representation. SA 200 requires professional skepticism, and management representations cannot substitute for other sufficient appropriate audit evidence on matters material to the financial statements. The seniority or professional qualification of the CFO does not change this requirement.

  1. AReliance is acceptable because a written representation from a senior officer is sufficient appropriate audit evidence
  2. BReliance is acceptable only if the CFO is a Chartered Accountant
  3. CReliance is not acceptable, since the auditor must maintain professional skepticism and cannot treat management's representations as a substitute for other sufficient appropriate audit evidenceCorrect
  4. DReliance is acceptable if the amounts involved are below the statutory audit fee

Explanation

SA 200 requires professional skepticism, recognising that circumstances may exist that cause financial statements to be materially misstated. Management representations alone cannot replace other sufficient appropriate evidence on matters affecting the financial statements. The CFO's seniority or qualification does not alter this, and the audit fee has no bearing on the evidence needed.

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