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CA Intermediate · Auditing and Ethics · Completion and Review

While auditing Sundaram Pharma Ltd, CA Arjun finds that the written representation obtained from the CEO about the completeness of related party transactions is inconsistent with the audit evidence gathered from the review of board minutes and bank confirmations. What is the appropriate response of the auditor under SA 580?

The auditor should investigate the inconsistency, consider whether the other representations are still reliable, and reconsider the assessment of management's integrity. Written representations cannot substitute for other audit evidence, and immediate resignation or ignoring the conflict is not the prescribed response under SA 580.

  1. AAccept the representation because management representations are more reliable than other audit evidence
  2. BDisregard the inconsistency, since written representations are only a formality required for documentation
  3. CInvestigate the circumstances, consider whether the other representations remain reliable, and reconsider the assessment of the integrity of managementCorrect
  4. DImmediately resign from the engagement without performing any further procedures

Explanation

Under SA 580, if representations are inconsistent with other audit evidence, the auditor must perform audit procedures to resolve the matter and reconsider the reliability of other representations and management's integrity. Representations cannot replace other appropriate audit evidence. Resignation is not the immediate automatic response, so that option is wrong.

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