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

In the audit of Rathod Engineering Ltd, the auditor concludes that a response to a positive confirmation request from the main customer, owing Rs 8 crore, is necessary to obtain sufficient appropriate audit evidence. The customer does not reply despite reminders. The auditor performs a test of subsequent receipts, which looks satisfactory. What is the correct conclusion under SA 505?

Alternative procedures do not provide the evidence required when a positive confirmation response has been judged necessary. The auditor must therefore determine the implications for the audit and the opinion under SA 705 (Revised), such as a possible modification, instead of treating subsequent receipts as sufficient.

  1. AThe subsequent receipts test is adequate as an alternative procedure, so no further implication arises
  2. BThe auditor should treat the non-response as an error by management and request a management representation
  3. CAlternative procedures will not provide the required evidence, so the auditor must determine the implications for the audit and opinion under SA 705 (Revised)Correct
  4. DThe auditor should withdraw from the engagement automatically

Explanation

Where a response to a positive confirmation is determined to be necessary, alternative procedures will not give the evidence required. If no confirmation is obtained, the auditor determines the implications for the audit and opinion under SA 705 (Revised). The subsequent receipts test therefore does not cure the gap.

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