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CA Intermediate · Auditing and Ethics · Audit Evidence

During the audit of Sundaram Pharma Ltd, the auditor receives a bank confirmation directly from the bank by email from an address that does not match the bank's known domain. The balance agrees with the company's books. What is the most appropriate response under SA 505?

The auditor should verify the authenticity of the response, for instance by contacting the bank through an independently known channel, before relying on it. Under SA 505, doubts about a confirmation's reliability require further evidence. Agreement with the books does not prove authenticity, and qualifying the report immediately would be premature.

  1. ATreat the confirmation as reliable because the balance agrees with the books
  2. BReject the evidence and rely only on the bank statement given by the client
  3. CVerify the authenticity of the response, for example by contacting the bank through a known channel, before relying on itCorrect
  4. DDisclose the doubt in the audit report as a qualification without any further procedure

Explanation

Where there are doubts about the reliability of a confirmation response, SA 505 requires the auditor to obtain further audit evidence to resolve them, such as verifying the source and the sender's authority. Agreement with the books does not establish authenticity, and a client-supplied statement is weaker evidence. Qualifying without further procedures is premature.

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