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CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence

In auditing Himalaya Agro Pvt Ltd, the auditor finds the risk of material misstatement in inventory existence to be high. A staff member suggests collecting twice as many internally generated stock sheets, though these were prepared by the storekeeper who is under pressure to meet targets. Which conclusion is correct under SA 500?

The auditor should seek better-quality evidence rather than simply more of the same. SA 500 states that higher assessed risks require more evidence, but obtaining more audit evidence may not compensate for its poor quality, so extra internally generated sheets do not solve the problem.

  1. ADoubling the quantity of internal sheets will fully compensate for their poor quality
  2. BObtaining more audit evidence may not compensate for its poor quality, so evidence of better quality should be soughtCorrect
  3. CHigher risk reduces the evidence needed, so fewer sheets are enough
  4. DQuality of evidence is irrelevant if the quantity is sufficient

Explanation

SA 500 says sufficiency measures quantity, which rises with assessed risk, and that obtaining more evidence may not compensate for poor quality. Hence more of the same weak evidence is not the answer. Option A is wrong because it claims quantity fully compensates for quality.

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