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

While auditing Kaveri Agro Ltd, CA Meera finds the audit team is under time pressure, so she decides to skip testing a few high-value year-end journal entries because management is of high integrity and the entries look routine. Which statement best reflects the Standards on Auditing?

The skipping is not acceptable. SA 200 requires professional scepticism, and SA 240 treats management override of controls as a risk in every audit, so journal entries must be tested. Past management integrity, time pressure or partner verbal approval cannot justify omitting this procedure.

  1. ASkipping is acceptable because a history of management integrity eliminates fraud risk
  2. BSkipping is acceptable if the engagement partner approves it verbally
  3. CSkipping is not acceptable; the auditor must maintain professional scepticism and cannot assume management is honest, as management override of controls is a risk present in every auditCorrect
  4. DSkipping is acceptable if the entries are posted by senior accountants

Explanation

SA 200 requires professional scepticism throughout the audit, and SA 240 treats management override of controls as a presumed risk in every entity, requiring journal entry testing. Past integrity and time pressure do not remove this requirement. Verbal partner approval or the seniority of the poster does not change it.

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