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:
What should an auditor do:
i) To obtain sufficient appropriate audit evidence regarding the existence and condition of inventory where inventory is material to the financial statements? (2 marks)
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If inventory is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of inventory by:
- Attendance at physical inventory counting, unless impracticable
- Evaluation of management’s instructions and procedures for recording and controlling the results of the entity’s physical inventory counting
- Observation of the performance of management’s count procedures
- Inspection of the inventory
- Performance of test counts.
(2 points for 2 marks)
ii) When physical inventory counting is conducted on a date other than the date of the financial statements? (2 marks)
View Solution
Where physical inventory counting is conducted at a date other than the date of the financial statements, the auditor shall, in addition to the procedures required as per b) i) above, perform audit procedures to obtain audit evidence about whether changes in inventory between the count date and the date of the financial statements are properly recorded.