CA Intermediate · Auditing and Ethics · Audit Evidence
During the audit of Meera Pharma Ltd, the auditor obtains an external confirmation from a debtor, but the reply arrives by email from an address that differs from the one on the confirmation request, and it is not sent directly to the auditor. As per SA 505, what is the most appropriate audit response?
The auditor should treat the mismatch as a doubt about reliability and perform further procedures, such as contacting the debtor directly to verify the reply. Under SA 505 doubts about a confirmation response must be resolved with additional evidence, and management cannot be relied upon to validate it.
- AAccept the reply as reliable because it came from the debtor's domain
- BTreat it as a doubt over reliability and perform further procedures to resolve the doubtCorrect
- CIgnore the reply and treat the balance as unconfirmed with no further work
- DAsk the management to authenticate the reply on behalf of the debtor
Explanation
Under SA 505, if the auditor doubts the reliability of a response, the auditor obtains further audit evidence to resolve the doubt, for example by contacting the purported sender. Accepting it blindly ignores the risk of the reply being unreliable. Management must not be used to authenticate, as that defeats the independence of the confirmation.
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