PIHU Ltd. is a company engaged in the manufacture of Kids toys. The company sells its goods on credit basis. M/s. Mohan Sohan & Associates have…

CA Final · Advanced Auditing, Assurance and Professional Ethics · MTP · November 2024
PIHU Ltd. is a company engaged in the manufacture of Kids toys. The company sells its goods on credit basis. M/s. Mohan Sohan & Associates have been appointed as statutory auditors of PIHU Ltd. for the FY 2023-24. During the course of audit, CA Mohan, the engagement partner asks the management about the e-mail addresses of trade receivables of the company for the purpose of obtaining balance confirmation from the trade receivables. The management of the company asked its sales supervisor to send a confirmation request to the trade receivables and collect all the responses and provide all such responses to the auditor. The management of PIHU Ltd. also informed CA Mohan that confirmation with respect to two of its trade receivables, namely Moon Ltd. and Sun Ltd. won't be available as a dispute between PIHU Ltd. and both the trade receivables is going on. With respect to other trade receivables, the sales supervisor provided CA Mohan with all the balance confirmation. With respect to the balance confirmation request, which of the following is warranted as per the requirement of the relevant SA?
(A) CA Mohan should not have relied on the explanation provided by the management with respect to the trade receivables, namely Moon Ltd. and Sun Ltd. and he should perform alternative procedures with respect to such trade receivables.
(B) CA Mohan should have obtained direct response from all other trade receivables instead of sales supervisor receiving direct responses from trade receivables and providing them to the auditor.
(C) Both (a) and (b).
(D) CA Mohan should give a qualified opinion as balance confirmation with respect to two trade receivables is not available.

Suggested Answer and Working Notes:

Correct Answer: Option (C)

Both (a) and (b).

Topics: Audit Evidence

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