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

During the audit of Himalaya Foods Pvt Ltd, CA Rohan finds that the CFO prepared a revised inventory sheet after year end that conflicts with the physical count notes. Rohan's doubts about management's integrity grow. Under SA 200, which attitude should he adopt?

Rohan should apply professional scepticism: keep a questioning mind, critically assess the conflicting evidence and seek corroboration. SA 200 does not let him presume management is honest, nor does it require him to presume dishonesty or abandon the audit.

  1. AAccept management's explanation as the representations of a responsible officer need no corroboration
  2. BApply professional scepticism, maintaining a questioning mind and critically assessing the evidence, without assuming dishonesty or unquestioned honestyCorrect
  3. CAssume the management is dishonest and refuse all further representations in writing
  4. DStop the audit immediately and report to the police

Explanation

SA 200 requires the auditor to plan and perform the audit with professional scepticism, a questioning mind alert to conditions suggesting misstatement and critical assessment of evidence. The auditor neither assumes dishonesty nor unquestioned honesty. Option A ignores scepticism, while C and D overreact without evidence.

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