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CA Intermediate · Auditing and Ethics · Audit Evidence

Ganga Steel Ltd's management refuses to allow the auditor to send a confirmation request to a major debtor, saying the debtor is a sensitive customer. The balance is material. Under SA 505, what should the auditor do?

The auditor should ask why management refuses, judge whether the reasons are valid, and perform alternative procedures. If sufficient evidence still cannot be obtained, the auditor should inform those charged with governance and consider the effect on the audit opinion, as SA 505 requires.

  1. AAccept the refusal and rely on the management representation letter alone
  2. BInquire into management's reasons and evaluate their validity, perform alternative procedures, and if no sufficient evidence is obtained, communicate with those charged with governance and consider the effect on the opinionCorrect
  3. CSend the request anyway without informing management
  4. DWithdraw from the engagement immediately without any other action

Explanation

SA 505 requires the auditor to inquire into the reasons, evaluate whether they are valid, and perform alternative audit procedures. If the refusal is unreasonable or alternative procedures give insufficient evidence, the auditor communicates with those charged with governance and determines the implications for the audit and opinion. A representation letter cannot substitute for evidence. Immediate withdrawal skips required steps.

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