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CA Intermediate · Auditing and Ethics · Audit of Items of Financial Statements

During the audit of Kaveri Textiles Ltd, the auditor attends the physical verification of inventory at the factory on 28 March, while the balance sheet date is 31 March. The company's books show no stock records updated after the count. Which procedure is most appropriate for the auditor to follow regarding the period between count date and year end?

The auditor should perform procedures on inventory movements between the count date and the balance sheet date. Under SA 501, when counting is done on a date other than year end, the auditor must verify that changes in inventory in that interval are properly recorded.

  1. AAccept management's year-end figure without further work since the auditor attended the count
  2. BPerform audit procedures on the movements of inventory between the count date and the balance sheet dateCorrect
  3. CReject the inventory figure and issue an adverse opinion
  4. DAsk the company to repeat the count on 31 March after the year end

Explanation

Where the count is held on a date other than the balance sheet date, SA 501 requires the auditor to test the movements (receipts and issues) between the count date and year end to confirm that changes are properly recorded. Accepting the figure unchecked ignores the gap; an adverse opinion is premature; repeating the count after year end does not fix the date gap.

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