CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence
In auditing Shree Ganesh Pharma Ltd, the auditor assessed a significant risk of fraud in the existence of a large receivable from one distributor. The auditor concluded that a reply to a positive confirmation request is necessary to obtain sufficient appropriate audit evidence. The distributor does not respond to either the first or the second request. What is the correct approach?
The auditor must determine the implications for the audit and the audit opinion in accordance with SA 705 (Revised). When a positive confirmation response is necessary, alternative procedures cannot supply the required evidence, and non-response cannot be treated as confirmation or replaced by management representation.
- ARely on alternative audit procedures such as subsequent receipts, since they will always provide the same evidence
- BTreat the silence as confirmation of the balance and close the matter
- CDetermine the implications for the audit and the auditor's opinion in accordance with SA 705 (Revised)Correct
- DObtain a management representation that the balance is correct and ignore the non-response
Explanation
Where a response to a positive confirmation is necessary, alternative procedures will not provide the evidence required. If no confirmation is obtained, the auditor must determine the implications for the audit and opinion under SA 705 (Revised). Treating silence as agreement is wrong, and a management representation cannot replace external evidence.
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 Kaveri Textiles Ltd, CA Ritu must decide which evidence on the existence of trade receivables is most reliable. She has (i) t…
- During the audit of Himalaya Foods Ltd, CA Nisha asks the plant manager whether the internal control over goods dispatch operated effectivel…
- The auditor of Himalaya Foods Ltd has determined that a response to a positive confirmation request from a major debtor is necessary to obta…
- Auditor Meera Iyer is auditing Deccan Steels Ltd. The finance head states in an inquiry that the controls over dispatch approvals operated e…
- In the audit of Rathod Engineering Ltd, the auditor concludes that a response to a positive confirmation request from the main customer, owi…
- During the audit of Rohan Pharma Ltd, the auditor finds that the quality of evidence on a material provision is poor, as it consists only of…