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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

In the audit of Narmada Pharma Ltd, the auditor sends a trade receivable confirmation request to a customer, but no reply is received despite follow-ups. The balance is material and the auditor cannot get adequate evidence by other means. What is the most appropriate audit response under the Standards on Auditing?

The auditor should carry out alternative procedures, such as testing subsequent receipts and shipping documents, and if sufficient appropriate evidence still cannot be obtained, consider the impact on the opinion as a scope limitation. Non-response is neither acceptance nor automatically a misstatement.

  1. APerform alternative audit procedures such as examining subsequent receipts and shipping documents, and if sufficient evidence is still not obtained, consider the effect on the audit opinionCorrect
  2. BAccept the balance as correct because the customer did not dispute it
  3. CTreat the non-response as a misstatement and propose writing off the full balance
  4. DRely on management's representation letter as conclusive evidence of the balance

Explanation

Where no reply to a confirmation request is received, the auditor performs alternative procedures such as checking subsequent cash receipts and despatch documents. If sufficient appropriate evidence is still not obtained, it is a limitation on scope and the opinion is modified. Silence is not agreement, and management representation cannot replace other evidence.

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