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

In the audit of Sundaram Pharma Ltd, CA Meera assessed a significant risk of fraud over revenue from a few large distributors. Management offers detailed internal sales registers and a signed management representation confirming the balances. Which action is most consistent with SA 330 and SA 505 as described in the standards?

The auditor should consider external confirmations from the distributors. For significant risks, including fraud, SA 330 requires more persuasive evidence, and confirmations received directly from independent third parties give the high reliability needed. Internal registers and management representations alone are weaker and need independent corroboration.

  1. AAccept the registers and representation since management has signed them
  2. BReduce sample size because the registers are detailed and internally consistent
  3. CRely on inquiry of the sales head, as inquiry is sufficient for significant risks
  4. DConsider external confirmation requests to obtain more persuasive, highly reliable evidence directly from the distributorsCorrect

Explanation

SA 330 requires more persuasive evidence as assessed risk rises, and external confirmation procedures may help obtain evidence with the high reliability needed for significant risks, whether from fraud or error. Internal records and representations can be corroborated by independent sources. Inquiry alone ordinarily does not give sufficient evidence of absence of material misstatement.

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