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CS Professional · Compliance Management, Audit and Due Diligence · Audit Principles and Techniques

While auditing Kaveri Textiles Ltd, the auditor's inquiries of the finance manager about the ageing of debtors are answered one way, but the response of the audit committee chairperson, sought to corroborate it, is different. Under SA 500, what does this inconsistency indicate?

Inconsistent responses from management and those charged with governance indicate that an individual item of audit evidence may not be reliable. The auditor should look into the difference rather than accept either response automatically, and inquiry itself is not worthless.

  1. AThat the finance manager's response is automatically correct because management has primary responsibility for the accounts
  2. BThat an individual item of audit evidence may not be reliableCorrect
  3. CThat the auditor must ignore both responses and rely only on prior-year evidence
  4. DThat the inquiry procedure has no evidential value at all

Explanation

SA 500 explains that evidence from different sources that is inconsistent, such as differing responses to inquiries of management and those charged with governance, may indicate that an item of audit evidence is not reliable. It does not make either response automatically correct, and it does not remove the evidential value of inquiry altogether. The auditor must investigate further.

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