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CMA Intermediate · Corporate Accounting and Auditing · Audit Engagement, Audit Program, Audit Documentation and Audit Evidence

Responses by management of Sagar Pharma Ltd to the auditor's inquiries on inventory obsolescence are inconsistent with responses from the internal audit department. Which conclusion best follows from SA 500 and SA 230?

Inconsistent responses from management and internal audit may indicate that an individual item of evidence is not reliable. SA 230 also has a specific documentation requirement where information is inconsistent with the auditor's final conclusion regarding a significant matter.

  1. AThe inconsistency may indicate an item of evidence is unreliable, and SA 230 requires documenting information inconsistent with the final conclusion on a significant matterCorrect
  2. BThe management response must be accepted as it is the primary source
  3. CThe inconsistency need not be considered if the sample size was adequate
  4. DOnly the internal audit response is documented and the other discarded

Explanation

SA 500 explains that evidence from different sources being inconsistent, for example responses of management and internal audit, may indicate that an item of evidence is not reliable. It also notes SA 230 has a specific documentation requirement for information inconsistent with the auditor's final conclusion on a significant matter. The other options ignore this.

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