Page 103 - CA Inter Audit PARAM

CA Ravi Taori
(i) One purchase bill amounting to ₹ 5.00 lacs pertaining to TIM Industries has been entered in
books of TIM Private Limited.

(ii) The management has refused to provide a written representation relating to physical
verification of inventories during the year. She has brought it to knowledge of engagement
partner who has decided to use lack of such a representation as audit evidence.

Discuss whether each of above constitutes audit evidence. State reasoning for your answer.
Answer Audit evidence comprises both information that supports and corroborates management’s assertions, and
any information that contradicts such assertions. Purchase bill of ₹ 5.00 lacs pertaining to TIM Industries has
been entered in books of TIM Private Limited. Therefore, it is contradicting management’s assertion relating
to occurrence of such purchases. Hence, it constitutes audit evidence.

Further, the absence of information (for example, management’s refusal to provide a requested
representation) is used by auditor, and therefore, also constitutes audit evidence. In the given case,
management has refused to provide a written representation relating to physical verification of inventories
during the year. Therefore, absence of information is used by auditor and it also constitutes audit evidence.

Management expert (Step1:Evaluate management Old Course - (N20E/ M21R/N22M/N23R)
QNO expert?) New Course—(S24M)
500.02
Bhaskar CNO SA500.160
Comment on the following in relation to SA: - Information regarding the competence, capability and
objectivity of the management’s expert may come from a variety of sources.
OR
CA Amar is the statutory auditor of XYZ Ltd. for the FY 2021-22. During the course of audit, CA Amar found
that a litigation is going against the company for which the company has hired an external legal team
(management expert). CA Amar wanted to use the information as audit evidence which is prepared using
the work of the management expert. What should CA Amar consider before using the work of such

management expert?
OR
Expert Industries Limited is engaged in petrochemical business. Due to nature of its business, the company
has hired PQR Associates, a reputed firm of chartered engineers, to determine the quantity and valuation
of inventories for preparation of financial statements. The auditor of Expert Industries Limited want to use
the same as audit evidence. Before using the work of PQR Associates, management’s expert, what aspects
should be taken care by auditor?

➢ Steps before relying on Management’s Expert
The auditor shall, to the extent necessary, having regard to the significance of that expert’s work
for the auditor’s purposes, -

• Evaluate the competence, capabilities and objectivity of that expert;
• Obtain an understanding of the work of that expert; and
• Evaluate the appropriateness of that expert’s work as audit evidence for the relevant assertion.

➢ Competence, Capabilities and Objectivity – Sources of Evidence
The auditor may obtain information regarding the competence, capabilities and objectivity of a
management’s expert from a variety of sources, such as: -
• knowledge of that expert’s qualifications;
• published papers or books written by that expert.
• personal experience with previous work of that expert;
• discussions with that expert;
• discussions with others who are familiar with that expert’s work;

QNO-- Evaluating CCO & Understanding Filed of Expert New Course – (S24E)
500.02.50 Bhaskar CNO – SA 500.160

The management of D. Ltd. have engaged an actuary-expert to ascertain actuarial valuation of gratuity for

provision to be made in the accounts. As an auditor of D. Ltd., you plan to use the report of the said expert
www.auditguru.in 4.2