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

CA Rohit is auditing Himalaya Steels Ltd. Management has not recorded a material liability, but the auditor, when seeking written representations, is told by the CFO that such representations are only a formality. Later, the auditor discovers that the liability is unrecorded and the CFO's statements were contradicted by supplier confirmations. Which is the most appropriate view?

Written representations cannot replace other audit evidence. Because the CFO's statements are contradicted by supplier confirmations, the auditor must question management's integrity, reconsider the reliability of other representations and revisit the risk assessment, rather than rely on the CFO or ignore the external evidence.

1. AWritten representations are sufficient appropriate audit evidence by themselves, so the auditor may rely on the CFO
2. BWritten representations are not a substitute for other audit evidence; the contradictory evidence calls into question management's integrity and reliability of other representations, so the auditor should reconsider the risk assessment and evidence reliabilityCorrect
3. CThe auditor should ignore the supplier confirmations since they are external and less reliable than management statements
4. DThe auditor should withdraw representations and issue an unmodified opinion since no misstatement was recorded by the auditor