CA Intermediate · Auditing and Ethics · Audit Evidence
In auditing Ganga Pharma Ltd, the auditor requested a bank confirmation for a term loan balance. The bank's reply arrives by email from an address that the auditor cannot verify as the bank's official address, and it contains a disclaimer that the information is provided without responsibility. Which is the most appropriate auditor response under SA 505?
The auditor should treat the reply as potentially unreliable and perform further procedures, such as verifying the sender's authenticity directly with the bank through independent means. Under SA 505, doubts about the source of a confirmation must be resolved, and management's assurance cannot substitute for this.
- AAccept the reply as reliable evidence because it came from the bank
- BTreat the reply as unreliable, and perform further procedures to address the risk, such as verifying the source or contacting the bank to confirm authenticityCorrect
- CIgnore the reply and conclude the balance is misstated
- DAsk the company's finance manager to confirm that the email is genuine and rely on that
Explanation
SA 505 requires the auditor to consider risks that a response may not be from an authentic source or may be altered. The auditor should perform further procedures such as verifying the sender with the bank. Relying on management's assurance is wrong because it is not independent, and concluding misstatement is premature.
Did you get it right without looking?
One question tells you little. A timed set on Audit Evidence shows your real accuracy, how long you take and where you lose marks.
More Audit Evidence questions
- While auditing Himalaya Steels Ltd, CA Rohan relies on a valuation report from a management's expert, an independent valuer engaged by the c…
- An auditor wants to use a schedule of fixed asset additions prepared by the accounts team of Bhatia Logistics Ltd as audit evidence. Under S…
- While auditing Shree Textiles Ltd, the auditor wants evidence of the existence of a fixed deposit shown in the balance sheet. The auditor ob…
- While auditing Sagar Textiles Ltd, the auditor needs evidence about the completeness of purchase liabilities at the year-end. Which of the f…
- While auditing Kaveri Textiles Ltd, the auditor intends to use a schedule of ageing of trade receivables generated by the company's ERP syst…
- The auditor of Kaveri Pharma Ltd receives a bank confirmation directly from the bank by post, but the envelope seems to have been opened and…