Skip to content

CMA Intermediate · Corporate Accounting and Auditing · Audit Engagement, Audit Program, Audit Documentation and Audit Evidence

During execution of the audit program for Kaveri Textiles Ltd, the auditor gets a management reply on the existence of certain inventory that conflicts with the reply given by the internal audit head. Under SA 500, what is the most appropriate inference?

Inconsistent responses from management and internal audit may indicate that an item of audit evidence is unreliable, as SA 500 states. The auditor should therefore extend or modify the audit procedures to resolve the inconsistency, rather than automatically accepting either party's version or ignoring it.

  1. AThe management reply must prevail because management prepares the financial statements
  2. BThe conflict may indicate that an item of audit evidence is not reliable, so the program should be modified or extended to resolve itCorrect
  3. CThe internal audit reply is automatically correct because it is independent
  4. DThe conflict can be ignored if the amount is below the audit fee

Explanation

SA 500 notes that when responses to inquiries of management, internal audit and others are inconsistent, this may indicate that an individual item of audit evidence is not reliable. The auditor therefore resolves the inconsistency with further procedures. Automatically preferring either party's reply is not supported.

Did you get it right without looking?

One question tells you little. A timed set on Audit Engagement, Audit Program, Audit Documentation and Audit Evidence shows your real accuracy, how long you take and where you lose marks.

Practise Audit Engagement, Audit Program, Audit Documentation and Audit EvidenceFree diagnostic mock

More Audit Engagement, Audit Program, Audit Documentation and Audit Evidence questions