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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

While auditing Sahyadri Foods Ltd, the auditor selects a sample of trade receivables for confirmation. For a material customer, management requests that the auditor not send a confirmation, saying the customer is in a dispute with the company. What is the auditor's appropriate response under SA 505?

The auditor should inquire into management's reasons and evaluate their validity. If the refusal is reasonable, the auditor performs alternative procedures such as subsequent receipts testing. Only if the refusal is unreasonable and alternatives cannot give evidence does the matter affect the opinion.

  1. AComply with the request without further work because management is responsible for the accounts
  2. BTreat the request as a scope limitation and issue a disclaimer immediately
  3. CInquire about the reasons and seek audit evidence on their validity; if the refusal is reasonable, perform alternative audit proceduresCorrect
  4. DSend the confirmation secretly through a different address without informing management

Explanation

Under SA 505, if management refuses to allow a confirmation request, the auditor inquires about the reasons and seeks evidence on their validity and reasonableness. If the refusal is reasonable, the auditor performs alternative procedures such as examining subsequent receipts and correspondence. If unreasonable and alternatives are impossible, the auditor communicates with those charged with governance and considers the effect on the opinion. An immediate disclaimer is premature.

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