ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations
During the audit of Brightwell Co, the auditor sends external confirmation requests to trade receivable customers. Management asks the auditor not to confirm the balance of one large customer, Orlan Ltd, saying the customer is in dispute and contact would harm the relationship. Under ISA 505, what should the auditor do first?
The auditor should first inquire into management's reasons for the refusal and obtain evidence on whether they are valid and reasonable. If reasonable, alternative procedures are performed. If not, the auditor considers fraud risk and the effect on the audit, rather than simply accepting the refusal.
- AAccept the request as management knows the customer best and rely on the other confirmations
- BInquire about management's reasons and seek audit evidence on their validity and reasonablenessCorrect
- CReport management to the regulator immediately for obstructing the audit
- DConfirm the balance anyway without informing management
Explanation
ISA 505 requires the auditor to ask why management wants to refuse and to obtain evidence of the validity of the reasons. If the refusal is unreasonable, the auditor evaluates the implications for risk of fraud and the audit approach. If the refusal is reasonable, alternative procedures are performed. Immediate regulator reporting or covert confirmation is not the prescribed first step.
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