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CA Intermediate · Auditing and Ethics · Audit Evidence

In auditing Bharat Agro Ltd, the auditor sends a positive confirmation request to a debtor owing a material amount. Management asks the auditor not to confirm this balance, stating that the debtor is in a dispute. Under SA 505, which response is appropriate?

The auditor should inquire into management's reasons, evaluate whether they are valid, and perform alternative procedures on that balance if the confirmation is omitted. SA 505 does not allow the auditor to drop the confirmation silently. If the refusal is unreasonable, the auditor considers the effect on the opinion.

  1. AAgree to the request and omit the confirmation without further action
  2. BAsk management for the reasons, evaluate their validity and perform alternative procedures to obtain evidence on that balanceCorrect
  3. CConfirm all other debtors but treat the balance as correct if no dispute document is shown
  4. DWithdraw from the engagement immediately under the Code of Ethics

Explanation

SA 505 requires the auditor to ask why management wants to exclude an item and to seek audit evidence on the validity of the reasons. If the request is accepted, the auditor applies alternative procedures for that balance, such as subsequent receipts and the dispute correspondence. If the refusal is unreasonable and alternatives are impossible, SA 705 considerations apply. Silent omission is therefore wrong.

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