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CA Intermediate · Auditing and Ethics · Audit Evidence

During the audit of Ganga Pharma Ltd, the auditor observes the physical count of inventory at the warehouse on 28 March, whereas the balance sheet date is 31 March. Which procedure is most appropriate to obtain sufficient appropriate evidence about the year-end inventory?

The auditor should test inventory movements between 28 March and 31 March and adjust the counted quantities to the year-end. SA 501 requires evidence that records of that interval are accurate, so the count can support the balance sheet figure; ignoring movements or relying on representations is inadequate.

  1. ATreat the 28 March count as the closing inventory without further work
  2. BTest the movements between 28 and 31 March, such as receipts and issues, to roll the count back or forward to the year-endCorrect
  3. CDisclaim an opinion on inventory automatically
  4. DAsk management to issue a representation that no movement occurred

Explanation

When counting is on a date other than the reporting date, SA 501 requires the auditor to test transactions between the count date and the year-end. This reconciles the counted quantities to the closing figure. Accepting the count unchanged ignores movements, and a representation alone is not enough evidence.

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