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CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

During the audit of Pragati Steels Ltd, CA Nandini notices that the managing director has overridden the approval control on a large vendor payment. The payment is documented and appears supported by an invoice, but its nature is unusual. Nandini considers the effect of this on her professional approach. Which response is most consistent with professional scepticism as described in SA 200?

The auditor should keep a questioning mind and critically assess the evidence, staying alert to signs of possible fraud. SA 200 does not permit presuming management is honest, nor assuming it is dishonest. The documented payment does not remove the need to evaluate the management override.

  1. AAccept the invoice as genuine, because honesty of management should be presumed unless proved otherwise
  2. BTreat the matter as immaterial because the payment has supporting documentation
  3. CMaintain a questioning mind, remain alert to conditions indicating possible misstatement due to fraud, and critically assess the evidence rather than assume management is honest or dishonestCorrect
  4. DAssume management is dishonest and expand every audit procedure to full verification of all transactions

Explanation

SA 200 defines professional scepticism as an attitude including a questioning mind, alertness to conditions indicating misstatement and critical assessment of evidence. The auditor neither assumes management is dishonest nor presumes unquestioned honesty. Full verification of everything is not required, and documentation alone does not settle an unusual management override.

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