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

In the audit of Ganga Pharma Ltd, the auditor asks the purchase manager whether the inventory of raw materials has any obsolete items. The manager says none exist. The auditor proposes to treat this reply as sufficient evidence that inventory is free from material misstatement about valuation. Which view is correct under SA 500?

The reply is not sufficient on its own. Inquiry is a valid audit procedure and may give important evidence, but ordinarily it does not alone provide sufficient audit evidence that there is no material misstatement at the assertion level. The auditor should corroborate it with inspection, recalculation or other procedures.

1. AAcceptable, because the purchase manager is a senior employee and his oral statement is direct evidence
2. BAcceptable, provided the reply is written down in the working papers
3. CNot acceptable, because inquiry alone ordinarily does not provide sufficient audit evidence of the absence of a material misstatement at the assertion levelCorrect
4. DNot acceptable, because inquiry can never be used as an audit procedure