This SA deals with specific consideration by an auditor to obtain sufficient & appropriate audit evidences with aspect to certain aspects of:-
|Auditor’s Duty in regards to InventoryTo obtain sufficient & appropriate audit evidences regarding the existence & condition of inventory|
|Attendance at physical Inventory Counting|| v The auditor should attend physical inventory counting, if practicable for him.v Matters to be considered by the auditor while planning for attend at physical inventory counting:-Ø Nature of Inventory;Ø Stage of completion of work in progress;Ø Risk of material misstatement;|
Ø Materiality of Inventory;
Ø Nature of Internal Controls in regards to inventory
Ø Timing of physical inventory reporting;
Ø Procedures established for counting by the management,
Ø Requirement of any other person such as Expert etc.
|Procedure to be followed by the Auditor at physical count|
|Evaluate Management’s instructions & procedures||The auditor should evaluate management procedures for recording & controlling such asv Method of collection of used physical inventory counts records,v Accounting for unused physical inventory counts records;v The accurate identification of the stage of completion of work in progress;v Procedures used to estimate physical quantities|
|Observing the performance of management’s count procedures.|
|Inspection of Inventory||v The auditor should ascertain whether inventory actually exists physically or not.v The inspection helps in identifying obsolete, damaged or ageing inventory.|
|Perform Test Counts||v The best example of performing test counts is tracing items selected from management’s count records to the physical inventory and tracing items selected from the physical inventory to management’s count records.v It provides audit evidence about the completeness & the accuracy of those records.|
|Some Cases to be dealt by auditor||Auditor’s Duty in such case|
|If the physical inventory counting is conducted at the date other than the date of financial statements||To ascertain whether the changes in inventory between the count date and the date of the financial statements are properly recorded|
|if the auditor is unable to attend physical inventory counting due to unforeseen circumstances||v Observe some physical counts on an alternative date;&v Perform audit procedures on intervening transactions.|
|where the Attendance at Physical Inventory Counting Is Impracticable||v Adopt alternative audit procedures;v In case the auditor in unable to adopt alternative audit procedures, the auditor shall modify his opinion in the auditor’s report.|
|Where the inventory is under the custody & control of the 3rd party|| v Obtain external confirmation from that party on behalf of the entity in regards to the quantity|
& the condition of the inventory.v Perform inspection or other appropriate audit procedures.
SA 501 Audit Evidence
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