Page 123 - CA Inter Audit PARAM

CA Ravi Taori
• The auditor also shall determine the implications for the audit and the auditor’s
opinion in accordance with SA 705.

QNO— External Confirmation Request Denied Due to Dispute New Course – (SM25)
505.15 Bhaskar CNO - SA505.120

On reviewing schedule of trade receivables of a company, CA Mary finds that in respect of one
outstanding balance, the CFO of the company is not willing to allow her to send external confirmation
request due to the reason that sending out such request could spoil precariously placed business
relations with the customer. On further inquiry, she finds out that there is a dispute going on with the
company relating to some quality issues of goods sent to the customer and matter is sub judice. Efforts
are also being made by the company for out of court settlement. Reviewing correspondence with the
customer, she finds that issue is near resolution and no fraud risk factors exist. Is unwillingness of CFO
justifiable?
Answer • 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;
• Auditor shall evaluate the implications of management's refusal on the auditor's assessment
of the relevant risks of material misstatement, including the risk of fraud, and on the nature,
timing and extent of other audit procedures; and perform alternative audit procedures
designed to obtain relevant and reliable audit evidence.
• Case Discussion & Conclusion
A common reason advanced is the existence of a legal dispute or ongoing negotiation with the
intended confirming party, the resolution of which may be affected by an untimely
confirmation request. Further, fraud risk factors do not exist. Keeping in view, unwillingness
of CFO is justifiable.

www.auditguru.in 4.22