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

In the audit of Meenakshi Agro Ltd, the auditor's assessed risk of material misstatement in the existence of inventory held at a third-party warehouse is high. The CFO says the warehouse records are accurate and offers a written management representation. The auditor has enough time to do more. What is the most appropriate approach under SA 500 and SA 330 as described in the text?

The auditor should obtain corroborating evidence from an independent source, such as a direct confirmation from the warehouse keeper. At high assessed risk, more persuasive evidence is needed, and independent external evidence raises assurance beyond what management representations or internal records alone give.

  1. AAccept the representation, since inquiry of senior management ordinarily gives sufficient evidence of existence
  2. BSeek corroborating evidence from independent sources, such as a direct confirmation from the warehouse keeper, in addition to the internal evidenceCorrect
  3. CReduce the quantity of evidence because the representation is in writing
  4. DObtain only more copies of internal warehouse records to raise the quantity of evidence

Explanation

The higher the assessed risk, the more persuasive the evidence needed. Corroborating information from an independent source, such as an external confirmation, increases assurance obtained from internal evidence or management representations. More internal copies do not remedy poor quality.

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