During the audit of the financial statements of Looks Limited for the year ended March 31, 2024, CA Suyash, the statutory auditor requested external…
CA Final · Advanced Auditing, Assurance and Professional Ethics · RTP · May 2025
During the audit of the financial statements of Looks Limited for the year ended March 31, 2024, CA Suyash, the statutory auditor requested external confirmation for certain trade receivables and trade payables as part of audit procedures in accordance with SA 505: (i) CA Suyash sent a confirmation request to a debtor for balance of 15,50,000 which was outstanding for more than 6 months, insisting him to respond directly to the auditor, confirming whether they agree or disagree with the balance stated. (ii) He also sent a confirmation request to a creditor with an outstanding balance of 13,25,000 requesting a response only if there was a disagreement with the stated amount. CA Suyash received responses from the aforementioned debtor and creditor in following manner: The debtor confirmed that, as per their records, they owed - 14,90,000 to Looks Limited instead of 15,50,000 as per the company's books.The creditor did not respond to the confirmation request. Identify and explain the type of confirmation request sent by the auditor to the debtor and creditor. Also, discuss the course of action the auditor should take for the discrepancy in the confirmation received from the debtor and non-receipt of confirmation from the creditor.
Suggested Answer and Working Notes:
Positive confirmation request: A request that the confirming party respond directly to the auditor indicating whether the confirming party agrees or disagrees with the information in the request or providing the requested information. Exception – A response that indicates a difference between information requested to be confirmed, or contained in the entity's records, and information provided by the confirming party. The exception needs to be assessed to the entire population after analyzing the reason for difference. In the given situation, the auditor has sent the positive confirmation request for the amount of 15,50,000 to a debtor which was outstanding for more than 6 months, however, due to difference between information requested to be confirmed, or contained in the entity's records (i.e.15,50,000), and information provided by the confirming party (i.e.14,90,000) is forming situation of exception confirmation. The auditor's evaluation, when taken into account with other audit procedures the auditor may have performed, may assist the auditor in concluding whether sufficient appropriate audit evidence has been obtained or whether performing further audit procedures is necessary, as required by SA 330 in case a response is indicating an exception. The company should be asked to investigate and reconcile the discrepancy indicated by the confirming party. Negative confirmation request – A request that the confirming party respond directly to the auditor only if the confirming party disagrees. In the given case, the auditor has sent the negative confirmation request for 13,25,000 to a creditor. Non- response by the creditor implies that creditor agrees with the amount. Thus, an auditor is not required to take any action in this case.
Topics: Standard on Auditing (SA)
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