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CA Intermediate · Auditing and Ethics · Audit Evidence

During the audit of Kaveri Traders Pvt Ltd, the auditor sent an external confirmation request for a debtor balance of Rs 4,50,000. Management asks the auditor not to send it, saying the debtor is in a dispute with the company. What is the auditor's appropriate response under SA 505?

The auditor should inquire into management's reasons for refusing and obtain evidence about their validity. If the refusal is justified, alternative procedures are performed. If it is not justified, those charged with governance are informed and the effect on the opinion is considered.

  1. AAgree to management's request and rely on the sales invoices alone
  2. BInquire into management's reasons and seek audit evidence on their validity, and perform alternative procedures if the refusal is justifiedCorrect
  3. CTreat the refusal as proof of fraud and resign at once
  4. DSend the request anyway and ignore the management's objection without any evaluation

Explanation

SA 505 requires the auditor to ask why management refuses, evaluate the validity of the reasons, and perform alternative procedures if the refusal is reasonable. If unreasonable and no alternative evidence is available, the auditor communicates with those charged with governance and considers the impact on the opinion. Resigning immediately or accepting the refusal blindly is not the prescribed response.

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