- 4 Marks
Question
ISA 501 – Audit Evidence – Specific Considerations for Selected Items deals with three specific items that may be contained within a set of general-purpose financial statements and for which the auditor may need to obtain sufficient appropriate audit evidence. It deals with specific considerations for inventory, litigation and claims, and segment information.
Required:
i) What should an auditor do to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory where inventory is material to the financial statements? (2 marks)
ii) What should an auditor do when physical inventory counting is conducted on a date other than the date of the financial statements? (2 marks)
Answer
To obtain sufficient appropriate audit evidence regarding the existence and condition of inventory, the auditor should:
- Attend the physical inventory count unless it is impracticable.
- Evaluate management’s instructions and procedures for recording and controlling the results of the entity’s physical inventory counting.
- Observe the performance of management’s count procedures.
- Inspect the inventory and verify its condition.
- Perform test counts to ensure the inventory quantities are accurate.
(2 marks)
ii)
When physical inventory counting is conducted on a date other than the date of the financial statements, the auditor should perform audit procedures to obtain evidence about whether the changes in inventory between the count date and the reporting date have been properly recorded. This includes reconciling the physical count to the financial statement date and verifying that any movements in inventory after the count have been appropriately reflected in the accounting records.
(2 marks)
- Tags: Audit evidence, Audit Procedures, Inventory, ISA 501, Physical Counting
- Level: Level 3
- Topic: Types of Audit and Assurance Engagements
- Series: MAY 2020
- Uploader: Dotse