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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations

While auditing Corvin Ltd's revenue, the auditor obtains evidence from two procedures. A confirmation from a major customer states a balance of $120,000, but Corvin's ledger shows $150,000 for that customer, and management explains the difference verbally as 'timing'. Which response is most consistent with ISA 500?

The auditor should perform further procedures to resolve the inconsistency, such as cut-off, dispatch and subsequent receipt testing, and consider effects on other areas. Management's verbal explanation is weak evidence, and an unresolved difference cannot simply be ignored or sampled away.

  1. AAccept management's explanation because the ledger is the primary record
  2. BRely on the confirmation and ignore the ledger as it is internally generated
  3. CObtain further audit evidence to resolve the inconsistency, such as testing cut-off, goods dispatched and subsequent receipts, and consider the effect on other proceduresCorrect
  4. DIncrease the sample of other customers and leave this difference unresolved because it is only one item

Explanation

ISA 500 requires that where evidence from one source is inconsistent with another, the auditor determines what modifications or additions to procedures are needed and considers any effect on other aspects of the audit. A verbal explanation alone is weak evidence, and the difference must be investigated rather than ignored or simply accepted.

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