If unusual relationships are detected in substantive procedures, what should an auditor do first?

If unusual relationships are detected in substantive procedures, what should an auditor do first?

• A. Consider management response
• B. Document the findings
• C. Make inquiries with Directors
• D. Reassess the audit timeline

Answer: (C)

When unusual relationships are detected during substantive procedures, the appropriate initial action for an auditor is to make inquiries with directors. This step is crucial because the directors are in a position to provide insights and explanations regarding the unusual findings. Inquiring about these anomalies can help clarify the reasons behind them and whether they are indicative of underlying issues such as errors or fraud, or if they are explained by legitimate business variations. Directors, being part of the management team, have a comprehensive understanding of the company’s operations, strategies, and any extraordinary circumstances that may have impacted the financial statements. Gathering information directly from them helps the auditor assess the validity of the unusual relationships identified and determine the next course of action. Following this inquiry, the auditor would then proceed to evaluate the management’s responses, document the findings, or adjust the audit timeline as necessary based on the information received. However, initiating direct inquiries with the directors allows for a more informed understanding of the context surrounding the unusual relationships before making further decisions.

When unusual relationships are detected during substantive procedures, the appropriate initial action for an auditor is to make inquiries with directors. This step is crucial because the directors are in a position to provide insights and explanations regarding the unusual findings. Inquiring about these anomalies can help clarify the reasons behind them and whether they are indicative of underlying issues such as errors or fraud, or if they are explained by legitimate business variations.

Directors, being part of the management team, have a comprehensive understanding of the company’s operations, strategies, and any extraordinary circumstances that may have impacted the financial statements. Gathering information directly from them helps the auditor assess the validity of the unusual relationships identified and determine the next course of action.

Following this inquiry, the auditor would then proceed to evaluate the management’s responses, document the findings, or adjust the audit timeline as necessary based on the information received. However, initiating direct inquiries with the directors allows for a more informed understanding of the context surrounding the unusual relationships before making further decisions.