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

The auditor of Shreeji Pharma Ltd inquired of the finance head whether bank reconciliation controls operated throughout the year. The finance head confirmed verbally that they did. The auditor proposes to rely on this alone to conclude controls were operating effectively. What is the correct view under SA 500?

The approach is not acceptable. Inquiry may give important audit evidence, but inquiry alone ordinarily does not provide sufficient audit evidence of the operating effectiveness of controls. The auditor should combine it with procedures such as inspection, observation or reperformance.

  1. AAcceptable, as inquiry of senior management is always sufficient
  2. BAcceptable, if the finance head is a qualified chartered accountant
  3. CNot acceptable, as inquiry alone ordinarily does not provide sufficient audit evidence of operating effectiveness of controlsCorrect
  4. DNot acceptable, as inquiry can never be an audit procedure

Explanation

SA 500 says inquiry may provide important evidence but alone ordinarily does not give sufficient evidence of absence of material misstatement at assertion level or of operating effectiveness of controls. Option D overstates, since inquiry is a valid procedure when combined with others.

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