CA Intermediate · Auditing and Ethics · Audit Evidence

In the audit of Ganga Steels Ltd, the auditor requests confirmation of trade receivables from Delta Traders, whose balance is material. Management asks the auditor not to send the request, saying Delta is in dispute with the company. Under SA 505, the auditor finds management's reasons not valid enough to justify the refusal, cannot satisfy himself through alternative procedures, and the matter is material. What is the correct response?

The auditor should treat the refusal as a limitation of scope, communicate with those charged with governance, and consider the effect on the audit opinion. Under SA 505, when management's refusal is unreasonable and alternative procedures cannot give sufficient evidence, the opinion is modified, not ignored or escalated to automatic withdrawal.

1. AAccept the refusal and rely on subsequent receipts alone, whatever the result
2. BConclude that there is a limitation of scope, communicate with those charged with governance, and determine the implications for the audit opinionCorrect
3. CSend the request anyway through the management without informing them
4. DRecord the matter as a fraud and withdraw from the audit immediately