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

During the audit of Himalaya Foods Ltd, the CFO states in discussion that the inventory of imported packaging material is fully usable and carries no obsolescence. The auditor has no other evidence on this. Which conclusion is correct?

Inquiry alone ordinarily does not give sufficient audit evidence that no material misstatement exists at the assertion level. The auditor should corroborate the CFO's statement with other procedures such as inspection, observation or analytical procedures, rather than relying on inquiry or disregarding it entirely.

  1. AThe CFO's inquiry is enough because management knows the inventory best
  2. BInquiry alone ordinarily does not provide sufficient audit evidence of the absence of material misstatement at the assertion level, so further procedures such as inspection are neededCorrect
  3. CInquiry is not evidence at all and must be disregarded
  4. DInquiry is sufficient if the CFO is a member of ICAI

Explanation

SA 500 notes that inquiry may provide important evidence and may even reveal misstatement, but alone it ordinarily does not give sufficient evidence of the absence of material misstatement at assertion level. Option 3 is too extreme, since inquiry can be evidence. The auditor should combine it with inspection or other procedures.

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