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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Audit procedures and obtaining evidence

During the audit of Tamsin Foods, management asks the auditor not to send a confirmation request to a major customer, Dunmore Retail, whose receivable is $900,000 and material. Management says Dunmore is in dispute with the company and a request would damage the relationship. Under ISA 505, what should the auditor do first?

The auditor should first ask management why it refuses and gather evidence on whether the reasons are valid and reasonable. If they are not, or alternative procedures are inadequate, the auditor tells those charged with governance and considers the impact on the audit opinion, rather than relying on representations.

  1. AAccept the refusal and rely on management representations about the balance
  2. BInquire about management's reasons and seek audit evidence on their validity and reasonablenessCorrect
  3. CReport the refusal to the regulator immediately
  4. DSend the request anyway without telling those charged with governance

Explanation

ISA 505 requires the auditor to inquire why management refuses and seek evidence on the validity and reasonableness of the reasons. If the refusal is unreasonable, or alternative procedures cannot give sufficient evidence, the auditor communicates with those charged with governance and considers the effect on the opinion. Simply accepting representations is insufficient evidence for a material balance.

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