ditor X tried to convince the management the importance of external confirmations; however the management failed to agree. In order to perform alternate audit procedures, Auditor X requested the management to provide copies of the signed agreements entered into with these parties, copies of purchase orders received from custome
Biccu Private Ltd. is a leading automobile accessories manufacturing company. M/S
XYZ & Associates Chartered Accountants have been appointed as statutory auditors of Biccu
Private Ltd. for the financial year ended 31 March 2020, in place of the retiring auditor M/s
SLM & Associates.
While planning the audit, auditor X of M/S XYZ & Associates, examined the revenue
recognition policy of the Company and that the control in the goods is transferred to the
customers at the point they are delivered to the customers.
While performing the audit, auditor X noted that there are huge opening receivable balances
from three major parties which need to be directly confirmed. These balances are outstanding
for 2 years. However, the management did not agree to send confirmation requests for
opening balances on the grounds that such requests were never sent by the previous auditor.
Management also stated that confirmation for such balances were received directly by the
previous auditor, while performing audit in the previous year, and were duly verified. Further
during the current year, the management has created appropriate provision for doubtful debts
on part of these balances.
Auditor X tried to convince the management the importance of external confirmations;
however the management failed to agree.
In order to perform alternate
provide copies of the signed agreements entered into with these parties, copies of purchase
orders received from customers, sales invoices generated and proofs of delivery along with
customer acknowledgements, for sales transactions pertaining to above balances. However,
proofs of delivery along with customer acknowledgements were not made available by the
management.
Based on the above facts, answer the following questions.
1. Comment on whether auditor’ request is valid or management consent is valid.
2. In the above scenario, proofs of delivery along with customer acknowledgements
were not made available by the management of Biccu Pvt Ltd. advice Auditor X on
correct action to be taken.
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