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

The auditor of Himalaya Foods Ltd has determined that a response to a positive confirmation request from a major debtor is necessary to obtain sufficient appropriate audit evidence. The debtor does not reply despite reminders. Under SA 505, what must the auditor do?

The auditor must determine the implications for the audit and the audit opinion under SA 705 (Revised). Where a response to a positive confirmation request is necessary, alternative audit procedures will not provide the required evidence, so non-response cannot be cured by them or by management's assurance.

  1. APerform alternative audit procedures and treat them as providing the required evidence, since non-response is common
  2. BAccept the balance in the books since management is confident about recoverability
  3. CDetermine the implications for the audit and for the auditor's opinion in accordance with SA 705 (Revised), as alternative procedures will not provide the evidence requiredCorrect
  4. DWithdraw from the engagement immediately without considering the opinion

Explanation

Where the auditor has determined that a response is necessary, alternative procedures will not give the required evidence. SA 505 therefore requires the auditor to determine the implications for the audit and opinion under SA 705 (Revised). Using alternative procedures as a substitute is exactly what the text says will not work.

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