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

While auditing Kaveri Foods Pvt Ltd, CA Rohan finds that the company's accounts department staff are exceptionally cooperative, and the managing director says the year's results are 'obviously right'. Rohan decides to accept the management's written explanations on a large unusual sales entry without seeking other evidence. Which standard attitude has Rohan failed to apply?

Rohan has failed to apply professional scepticism. SA 200 requires a questioning mind and critical assessment of audit evidence, especially for unusual transactions. Relying only on management's explanations for a large unusual sales entry, merely because staff are cooperative, does not give sufficient appropriate audit evidence.

  1. AProfessional scepticism, which requires a questioning mind and critical assessment of audit evidenceCorrect
  2. BMateriality, which requires ignoring unusual entries below a threshold
  3. CIndependence, which requires the auditor not to meet management
  4. DDue care, which requires verifying every sale entry

Explanation

SA 200 requires the auditor to plan and perform the audit with professional scepticism, being alert to conditions indicating possible misstatement and critically assessing evidence. Accepting an unusual large entry on management's word alone, merely because staff are cooperative, fails this. Option D is wrong as due care does not require verifying every entry.

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