CA Inter P5 · Chapter 4 · Question 9 of 14
The auditor of Riddhi Pharma Ltd. assesses a risk of material misstatement regarding pending litigation and wishes to communicate with the company's external legal counsel. Management refuses permission. Under SA 501, the auditor shall:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Modify the opinion in accordance with SA 705 if management refuses permission and alternative procedures do not provide sufficient appropriate evidence
Explanation
SA 501 requires direct communication with external legal counsel through a letter of inquiry prepared by management and sent by the auditor where there is a risk of material misstatement. If management refuses permission, or counsel refuses to respond and alternative procedures do not provide sufficient evidence, the auditor shall modify the opinion under SA 705.
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