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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Professional and ethical developments

During the audit of Kestrel Components, the engagement partner notices that the finance director has provided a very detailed and persuasive explanation for a large unusual inventory write-back. The audit senior suggests accepting it because the finance director has been reliable in prior years. Which response best reflects professional skepticism under the ISAs?

The auditor should seek corroborating evidence. Professional skepticism means critically assessing audit evidence and not accepting a persuasive explanation or management's past reliability as a substitute for sufficient appropriate evidence, especially for an unusual, significant transaction like a large inventory write-back.

  1. AAccept the explanation, because prior-year reliability reduces the need for corroboration
  2. BSeek corroborating evidence, because a persuasive explanation is not a substitute for sufficient appropriate audit evidenceCorrect
  3. CRefer the matter immediately to the regulator because management's explanation is unusual
  4. DIncrease materiality so that the write-back falls below the threshold for further work

Explanation

Professional skepticism includes a questioning mind and a critical assessment of evidence, and the auditor should not accept less persuasive evidence because of a belief in management's honesty. The write-back is unusual, so corroboration is needed. Option A relies on past experience, which ISA 200 says does not justify accepting weaker evidence. Option C is premature, and option D manipulates materiality inappropriately.

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