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

While auditing Sundaram Pharma Ltd, the auditor selects trade receivables for circularisation. A customer, Mehta Distributors, owing ₹18 lakh, does not reply to the positive confirmation request even after a second request. What should the auditor do?

The auditor should perform alternative audit procedures, such as vouching subsequent receipts from Mehta Distributors and examining dispatch documents and invoices. Non-response to a positive confirmation is not audit evidence of the balance being correct, and it does not by itself require writing off the debt or withdrawing.

  1. ATreat the non-response as confirmation of the balance, since silence implies agreement
  2. BPerform alternative procedures such as examining subsequent receipts and underlying dispatch and invoice documentsCorrect
  3. CWrite off the entire ₹18 lakh balance as doubtful
  4. DWithdraw from the engagement because evidence cannot be obtained

Explanation

For a positive confirmation, non-response is not evidence of agreement. The auditor must perform alternative procedures, such as checking subsequent cash receipts, shipping documents and invoices. Treating silence as agreement (negative confirmation logic) is wrong for positive requests.

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