CA Intermediate · Auditing and Ethics · Nature, Objective and Scope of Audit

While auditing Himalaya Foods Pvt. Ltd., CA Meera finds that the company's accountant has made several estimates for warranty provisions that require significant judgment. Meera's engagement partner says the audit report cannot be affected because the estimates are management's responsibility. Which response best reflects SA 200 and the audit's scope?

The auditor must still obtain sufficient appropriate evidence on whether management's estimates are reasonable. Estimates are management's responsibility, and judgment is an inherent limitation of audit, but neither removes the auditor's duty to test them. The auditor does not prepare the estimates, and disclosure alone does not remove that duty.

1. AAgree, as the auditor has no responsibility for estimates, which belong wholly to management
2. BDisagree, because the auditor must prepare the estimates independently and substitute them for management's figures
3. CDisagree, because the auditor must obtain sufficient appropriate evidence on whether the estimates are reasonable, as the use of judgment is an inherent limitation but does not relieve the auditor of proceduresCorrect
4. DAgree, provided the estimates are disclosed in the notes, since disclosure removes the need for audit evidence