CA Intermediate · Auditing and Ethics · Audit Evidence
During the audit of Mehra Foods Ltd, management refuses to let the auditor send confirmation requests to major debtors, saying the customers are sensitive. Under SA 505, what must the auditor do first?
The auditor should first inquire about management's reasons for refusing and evaluate whether they are valid and reasonable. Depending on that, the auditor considers the effect on risk assessment and performs alternative procedures, and modifies the opinion only if sufficient evidence cannot be obtained.
- AAccept the refusal and perform no further work on debtors
- BTreat it as a scope limitation and issue a disclaimer straight away
- CInquire into management's reasons and seek evidence about their validity and reasonablenessCorrect
- DSend the requests anyway without informing management
Explanation
SA 505 requires the auditor to ask why management refuses and to evaluate the validity of the reasons, then consider the effect on risks of material misstatement and perform alternative procedures. A modification of opinion arises only if the refusal is unreasonable and alternative procedures cannot give sufficient evidence. Disclaimer immediately or ignoring the refusal is incorrect.
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