Page 156 - CA Final PARAM Digital Book.

Part 3- SA 580

QNO Misuse of WR Old Course – (N04E, N11R, N13R, N14E, M16M, N16M, SM17, PM17,
97.000 TITANIUM CNO--SA580.020 M18M, SM21)
The auditor of Moon Pvt. Ltd. having turnover of rupees 12 crore, was not able to get the confirmation
about the existence and value of certain stock. However, a certificate from the Management has been
obtained regarding the existence and value of the stock at the year end. The auditor relied on the
same and without any further procedure, signed the Audit Report. Is he right in his approach?
OR
M/s GBC & Co auditors of Vishu Ltd, accepted a certificate from management to certify the existence and
value of machinery as per records as they were unable to get the confirmation that could prove the
existence & value of the machinery State whether acceptance of certificate by GBC & Co is right approach
of the auditors.
Answer Part I -- Relevant Standards & Laws
➢ SA 580 “Written Representations”

Part II -- Requirements of Relevant Standards & Laws
➢ WR as Audit Evidence: - Audit Evidence helps in drawing conclusions / WR is also audit
evidence / Similar to response of Inquiry / It is necessary audit evidence / But it doesn’t
affect NTE of other audit procedures / WR cannot substitute other audit evidence that
the auditor could reasonable expect to be available / When we take WR for material item
/ obtain corroborative audit evidence from other source internal or external / Check
whether representations are reasonable and consistent / WR should come from well
informed individuals
As per SA 580 “Written Representations”, when representation relate to matters which are material
to the financial information, then the auditor should seek corroborative audit evidence for other
sources inside or outside the entity. He should evaluate whether such representations are
reasonable and consistent with other evidence and should consider whether individuals making
such representations can be expected to be well informed on the matter. “Written
Representations” cannot be a substitute for other audit evidence that the auditor could
reasonably expect to be available.

➢ No S&A Evidence: - Not able to obtain S&A evidence / Evidence which was reasonable
expected / regarding material items in FST / it will be limitation on scope / even though
there is WR
If the auditor is unable to obtain sufficient appropriate audit evidence that he believes would be
available regarding a matter, which has or may have a material effect on the financial information,
this will constitute a limitation on the scope of his examination even if he has obtained a
representation from management on the matter.

➢ Physical Verification: - Primary responsibility of the management / Auditor should examine
verification programme and try to attend physical verification / S&A evidence for existence
and valuation of stock
The physical verification of stock is the primary responsibility of the management. The auditor,
however, is required to examine the verification programme adopted by the management. He
must satisfy himself about the existence and valuation of stock.
Part III – Case Discussion
➢ Not able to verify existence & value of certain stock / No physical verification/ certificate
from management
In the case of Moon Pvt. Ltd., the auditor has not been able to verify the existence and value of
certain stock despite the verification procedure followed in routine audit. He accepted the
certificate given to him by the management without making any further enquiry.

Part IV -- Conclusion
➢ Auditor’s stand is not acceptable and not as per SA 580
Therefore, the approach adopted by the auditor is not tenable.
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