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CMA Intermediate · Corporate Accounting and Auditing · Audit Engagement, Audit Program, Audit Documentation and Audit Evidence

In auditing Kaveri Agro Ltd, responses of management to the auditor's inquiries on a related-party transaction are inconsistent with the response of those charged with governance, which was sought to corroborate management. Which statement is correct as per SA 500 and the linked documentation requirement?

The inconsistency may indicate that an individual item of audit evidence is unreliable, and SA 230 requires specific documentation if information inconsistent with the auditor's final conclusion on a significant matter was identified. The auditor cannot simply prefer management's response or ignore the conflict.

  1. AThe inconsistency suggests an individual item of evidence may not be reliable, and SA 230 has a specific documentation requirement where information is inconsistent with the auditor's final conclusion on a significant matterCorrect
  2. BThe management response must always be preferred because management has more knowledge
  3. CThe inconsistency may be ignored as inquiries are not audit evidence
  4. DThe evidence becomes more reliable because it came from two sources

Explanation

SA 500 notes that evidence from different sources that is inconsistent, such as differing responses of management and those charged with governance, may indicate an item of evidence is not reliable. SA 230 requires documentation where the auditor identified information inconsistent with the final conclusion on a significant matter. Preferring management or ignoring the gap has no support.

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