ACCA Strategic Professional · Advanced Audit and Assurance (International) · Completion and final review
Juniper Foods' management provides a representation that inventory of $4.2 million is stated at the lower of cost and net realisable value. The auditor's counts and testing show the inventory includes obsolete items of about $1.5 million that are not written down. Which approach is correct under ISA 580?
The representation reflects only management's belief and cannot be sufficient evidence on inventory valuation. Because it contradicts the auditor's own evidence, the auditor must investigate, reconsider the reliability of management's other representations, and assess the effect on the audit opinion.
- ARely on the representation as sufficient appropriate evidence of valuation, since management knows the business best
- BTreat the representation as evidence of management's belief only, and consider the effect on the opinion because it conflicts with other audit evidenceCorrect
- CIgnore the representation and not request any others
- DWithdraw from the engagement automatically
Explanation
ISA 580 states that representations are necessary but do not provide sufficient appropriate evidence on their own about a matter. Where they conflict with other audit evidence, the auditor investigates, considers the reliability of the representations and other representations, and considers the effect on the opinion. Here the $1.5 million misstatement must be addressed through the opinion, and relying on the representation would be wrong.
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