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CS Professional · Compliance Management, Audit and Due Diligence · Audit Principles and Techniques

During the audit of Sundaram Pharma Ltd, the CFO verbally says that a large receivable from a distributor is fully recoverable. The auditor then asks the audit committee chairperson, who says the distributor has been disputing the balance for months. What does SA 500 indicate about this situation?

The inconsistency between management's response and that of those charged with governance may indicate that the evidence is not reliable. The auditor should investigate further instead of accepting management's version automatically.

  1. AInconsistent responses from different sources may indicate that an item of audit evidence is not reliable, so further inquiry is neededCorrect
  2. BThe CFO's answer prevails because management is the primary source of evidence
  3. CThe audit committee chairperson's answer should be ignored because it is only an inquiry
  4. DThe inconsistency has no effect on reliability if both persons are senior

Explanation

SA 500 notes that evidence from one source being inconsistent with that from another may indicate that an individual item of evidence is not reliable, for example when responses of those charged with governance differ from management's. The auditor must therefore pursue the matter further rather than accept either answer by default.

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