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ACCA Strategic Professional · Advanced Audit and Assurance (International) · International regulatory frameworks for audit and assurance services

During the audit of Kestrel Foods, the audit senior notes that the finance director has always provided reliable explanations in prior years. The senior therefore accepts an unusual explanation for a large year-end credit note without seeking corroboration. Which statement best describes the problem under ISA 200 and ISA 220 requirements on professional scepticism?

The senior failed to exercise professional scepticism. Scepticism requires a questioning mind and critical assessment of evidence throughout the audit, and auditors must not accept less persuasive evidence merely because management has been reliable previously. The unusual credit note explanation therefore needed corroboration.

  1. AThere is no problem, because past reliability of management allows evidence to be reduced in the current year
  2. BThe senior has failed to maintain professional scepticism, which requires a questioning mind and critical assessment of audit evidence regardless of past experience with managementCorrect
  3. CThe senior has breached the requirement for reasonable assurance, because corroboration is only needed for balances above performance materiality
  4. DThe senior has applied scepticism correctly, because scepticism only applies when fraud is suspected

Explanation

Professional scepticism means maintaining a questioning mind, being alert to conditions that may indicate misstatement, and critically assessing evidence. ISAs state the auditor should not be satisfied with less persuasive evidence because of a belief that management is honest. The option linking scepticism only to suspected fraud is wrong because scepticism applies throughout the audit.

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