Page 127 - CA Final PARAM Digital Book.

Part IV -- Conclusion
➢ Doubts: - After using NCR, if auditor still has doubts and need more evidence. He should
perform further audit procedures. Specially for old outstanding 25 lakh balance. He can go
for PCR such balance.
But, if the auditor identifies factors that give rise to doubts about the reliability of the response to
the confirmation request, he shall obtain further audit evidence to resolve those doubts.

QNO Doubt Over Reliability of Responses New Course – (SM23)
63.500 TITANIUM CNO-- SA505.080
"As auditor of Groom Limited, you have sent positive confirmation requests to 30 creditors of the company
in March 2023. All of the creditors in informal sector are small concerns. You choose to send positive
confirmation requests to all the above parties at their business addresses stated on respective bills after
discussing the matter with CFO of the company. The CFO is cooperative and does not raise any hassles in
the matter. Responses to confirmation requests are received within a week’s time. Your articled clerk
informs you that out of above 30 creditors, GST registrations of 25 concerns have been cancelled during
financial year 2022-23 itself by collating information from GST portal. He further informs you that there
are no fresh registrations pertaining to PANs of these parties.

How you would proceed to deal with the situation as auditor of the company?"
Answer SA 505 states that if the auditor determines that a response to a confirmation request is not reliable, the
auditor shall evaluate the implications on the assessment of the relevant risks of material misstatement,
including the risk of fraud, and on the related nature, timing and extent of other audit procedures.

In the instant case, GST registrations of 25 concerns have been cancelled in the year 2022- 23. It indicates
that businesses on those addresses were closed. Further, there are no fresh registrations pertaining to the
PANs of these parties. However, the auditor sent external confirmation requests in March 2023, which were
duly responded. It raises questions on the reliability of responses received.

SA 500 indicates that even when audit evidence is obtained from sources external to the entity,
circumstances may exist that affect its reliability. All responses carry some risk of interception, alteration or
fraud. Such risk exists regardless of whether a response is obtained in paper form or by electronic or other
medium. Factors that may indicate doubts about the reliability of a response include:

• Was received by the auditor indirectly or
• Appeared not to come from the originally intended confirming party.

Keeping in view the circumstances described in the case situation, there is a risk that the response has not
come from the originally intended confirming party.

Unreliable responses may indicate a fraud risk factor that requires evaluation.

QNO External Confirmation (Refusal) Old Course – (M05E, M11E, M12M, N12R, M13M, M13E, PM17,
65.000 TITANIUM CNO--SA505.100 M17M, M18E, M20R, SM21)
The accountant of V Ltd has requested you, not to send balance confirmations to a particular group of
trade receivables since the said balances are under dispute and the matter is pending in the Court as
a Statutory Auditor, how would you deal?

Answer Part I -- Relevant Standards & Laws
▪ SA 505 “External Confirmation”

Part II -- Requirements of Relevant Standards & Laws
➢ Refusal to send a Confirmation Request: - Inquire as to management’s reasons & Seek audit
evidence as to their validity / Evaluate the implications (RMM / ROF) / Perform alternative
audit procedures.
If management refuses to allow the auditor to send a confirmation request, the auditor shall:
• Inquire as to management’s reasons for the refusal, and seek audit evidence as to their
validity and reasonableness;
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