Auditing and assurance revision question and answer

Auditing and Assurance Revision Questions and Answers

How would you deal with the following situation?
a) While carrying out the audit of a client you had found that direct confirmation from a major customer of the company had not been received. The management of the company has explained that due to a dispute which arose in the recent past, it is not advisable to pursue the customer as this would further aggravate the relationship. However, the management is willing to provide you copies of the statements received from the customer along with the reconciliation to verify the year-end balance, which you may retain in your working papers as audit evidence.
Answer :

As per NSA500 ” Audit Evidence”, the auditor should obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion. When obtaining audit evidence from tests of control, the auditor should consider the sufficiency and appropriateness of the audit evidence to support the assessed level of control risk. The nature, timing and extent of substantive procedures will vary depending on the assertions. The reliability of audit evidence is influenced its source.
Further, when in substantial doubt as to a material financial statement assertion, the auditor would attempt to obtain sufficient appropriate audit evidence to remove such doubt. If unable to obtain

sufficient appropriate audit evidence, however, the auditor should express a qualified opinion or a disclaimer of opinion.
In the given case, there exist some doubt about the balances as the management has agreed that there is a dispute and hence it is necessary to obtain external confirmation of balances if not the nature of dispute so that the auditor can reach a conclusion about the appropriateness of the debtors balances in addition to checking the statements available with the client.

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