CA Pranav is engaged to perform a review of the historical financial statements of LAN Innovations Ltd. for the financial year 2024-25. While…

CA Final · Advanced Auditing, Assurance and Professional Ethics · PYQS · May 2026
CA Pranav is engaged to perform a review of the historical financial statements of LAN Innovations Ltd. for the financial year 2024-25. While performing analytical procedures, CA Pranav identifies several significant payments made to a newly incorporated entity. Based on the nature and pattern of transactions, CA Pranav suspects that the entity may be a related party. Upon inquiry, management provides only a vague oral explanation, asserting that the entity is an independent third party vendor. To corroborate management's assertions, CA Pranav requests written representations, confirming identity, completeness and appropriate disclosure of all related party relationships and transactions. However, management refuses to provide written representations, stating that oral explanations are sufficient for a limited review engagement. In the context of SRE 2400, explain the course of action CA Pranav should take in response to management's refusal to provide written representations. Discuss the circumstances under which CA Pranav would be required to disclaim a conclusion or withdraw from the engagement.

Suggested Answer and Working Notes:

As per SRE 2400 “Engagements to Review Historical Financial Statements”, if management does not provide one or more of the requested written representations, CA Pranav, the practitioner shall: Discuss the matter with management and those charged with governance, as appropriate;Re-evaluate the integrity of management, and evaluate the effect that this may have on the reliability of representations (oral or written) and evidence in general; andTake appropriate actions, including determining the possible effect on the conclusion in the practitioner's report in accordance with this SRE. CA Pranav shall disclaim a conclusion on the financial statements, or withdraw from the engagement if withdrawal is possible under applicable law or regulation, as appropriate, if: The practitioner concludes that there is sufficient doubt about the integrity of management such that the written representations are not reliable orManagement does not provide the required representations in respect of its responsibilities for preparation of financial statements and recording of all transactions in financial statements.

Topics: Standard on Auditing (SA)

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