The document provides guidance to auditors on obtaining sufficient appropriate audit evidence regarding physical inventories. It involves observing management's count procedures, inspecting inventory to evaluate existence and condition, and performing test counts. The auditor is to attend physical inventory counting or perform alternative procedures if attendance is impracticable. The auditor also evaluates whether changes in inventory between the count date and financial statements date are properly recorded.
The document provides guidance to auditors on obtaining sufficient appropriate audit evidence regarding physical inventories. It involves observing management's count procedures, inspecting inventory to evaluate existence and condition, and performing test counts. The auditor is to attend physical inventory counting or perform alternative procedures if attendance is impracticable. The auditor also evaluates whether changes in inventory between the count date and financial statements date are properly recorded.
The document provides guidance to auditors on obtaining sufficient appropriate audit evidence regarding physical inventories. It involves observing management's count procedures, inspecting inventory to evaluate existence and condition, and performing test counts. The auditor is to attend physical inventory counting or perform alternative procedures if attendance is impracticable. The auditor also evaluates whether changes in inventory between the count date and financial statements date are properly recorded.
Evaluate management’s instructions and procedures for
recording and controlling the results of the entity’s physical inventory counting INVOLVES: Observe the performance of management’s count procedures Inspecting the inventory to ascertain its existence and evaluate its condition, and performing test counts Inspect the inventory Perform test counts Observing compliance with management’s instructions and the performance of procedures for recording and controlling the results of the physical inventory count PSA 501 deals with specific considerations by the auditor in obtaining sufficient appropriate audit Inventory Obtaining audit evidence as to the reliability of evidence regarding: management’s countprocedures Litigation and claims Segment information Existence and condition of inventory (a.) Attendance at physical inventory counting Completeness of litigation and claims involving the entity (1) SCOPE (b.) Performing audit procedures over the entity's final Presentation and disclosure of segment information in Obtaining an understanding of the methods used by inventory records accordance with the applicable financial reporting framework management in determining segment information, and evaluating whether such methods are likely to result in Obtain sufficient appropriate evidence on disclosure and where appropriate, testing the application of (3.1) When inventory is MATERIAL to the financial (5.1) The auditor shall obtain sufficient appropriate audit such methods statements, the auditor shall obtain sufficient (2) AUDITOR'S OBJECTIVE evidence regarding the presentation and disclosure of Performing analytical procedures or other audit procedures appropriate audit evidence regarding the EXISTENCE segment information in accordance with the applicable appropriate in the circumstances and CONDITION of inventory by: financial reporting framework by:
PSA 501: Audit Evidence – Specific
Considerations for Selected PSAs (5) SEGMENT INFORMATION (3.2) Physical inventory counting conducted other than (3) INVENTORY at the date of the financial statements (alternative date) (4) LITIGATION AND CLAIMS (4.1) The auditor shall design and perform audit In addition to the procedures required in 3.1 a & b, an auditor procedures in order to identify litigation and claims shall perform audit procedures to obtain audit evidence involving the entity which may give rise to a risk of about whether changes in inventory between the count date material misstatement, including: and the date of the financial statements are properly recorded Inquiry of management, and where applicable, others within (4.3) The auditor shall modify the opinion in the the entity May be done irrespective of whether management auditor's report in accordance with PSA 705 if: determines inventory quantities by an annual physical Reviewing minutes of meetings of those charged with inventory counting or maintains a perpetual inventory Communication with the entity's external legal counsel is not governance and correspondence between the entity and its system possible external legal counsel Alternative audit procedures do not provide sufficient Reviewing legal expense accounts The auditor shall perform alternative audit procedures,IF (3.3) Attendance at physical inventory counting is appropriate audit evidence POSSIBLE. impracticable (4.2) If the auditor assesses a risk of material IF NOT POSSIBLE, the auditor shall modify the opinion in the misstatement or when audit procedures indicate that The auditor shall do so through a LETTER OF GENERAL auditor's report in accordance with PSA 705. other material litigation or claims may exist, the auditor INQUIRY prepared by management and sent by the auditor shall, in addition to procedures required by other PSAs, requesting the entity's external legal counsel to inform the SEEK DIRECT COMMUNICATION with the entity's auditor of any litigation and claims that the counsel is aware (3.4) Inventory under the custody and control of a third external legal counsel. of with an assessment of the outcome of the litigation and an estimate of the financial implications, including costs When MATERIAL, the auditor shall obtain sufficient party involved. appropriate evidence regarding the existence and condition of that inventory by performing one or both of the folllowing: If it is unlikely that the external legal counsel will respond Request confirmation from the third party as to the quantities to a letter of general inquiry, the auditor may seek direct and condition of inventory held on behalf of the entity communication through a LETTER OF SPECIFIC INQUIRY.
Perform inspection or other audit procedures appropriate in