CA Final · Advanced Auditing, Assurance and Professional Ethics · Audit Evidence
The auditor of Narmada Foods Pvt Ltd has identified a significant risk of fraud in the existence of trade receivables. The auditor has determined that a response to a positive confirmation request from the main debtor, Sagar Retail, is necessary to obtain sufficient appropriate audit evidence. Sagar Retail does not reply despite reminders. What is the correct course under SA 505?
The auditor should determine the implications for the audit and the opinion under SA 705 (Revised). Where a positive confirmation response is necessary for sufficient appropriate evidence, alternative audit procedures will not supply the evidence required, so non-response cannot simply be bypassed.
- ARely on alternative audit procedures, since they will give the same evidence as the confirmation
- BDetermine the implications for the audit and the auditor's opinion in accordance with SA 705 (Revised), since alternative procedures will not provide the required evidenceCorrect
- CAccept management's representation that the balance is correct and treat the matter as closed
- DWithdraw the confirmation request and carry out only inquiry of the sales manager
Explanation
Where a response to a positive confirmation is necessary, alternative procedures will not provide the evidence required. If the confirmation is not obtained, the auditor determines implications for the audit and opinion under SA 705 (Revised). Option A is wrong because it assumes alternatives suffice.
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