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

During the audit of Kaveri Textiles Ltd, the auditor finds that the company's year-end stock count was carried out on 28 March, three days before the balance sheet date of 31 March. The company maintains perpetual inventory records. What is the most appropriate audit response regarding the count date?

The auditor should test the inventory movements between the count date of 28 March and the balance sheet date of 31 March. This roll-forward gives evidence that the year-end balance is properly recorded. Accepting the count as-is or disclaiming an opinion would be inappropriate responses.

  1. AAccept the count as the year-end figure without any further procedure, since the difference is only three days
  2. BReject the inventory balance and issue a disclaimer of opinion because the count was not on the balance sheet date
  3. CTest the movements of inventory between the count date and the balance sheet date to confirm the records are reliable roll-forwardCorrect
  4. DAsk management to restate inventory at the lower of cost and the count-date figures without further checking

Explanation

When a count is held on a date other than the balance sheet date, the auditor must obtain evidence that changes in inventory between the count date and the year-end are properly recorded. Accepting the figure unchanged skips this roll-forward test. A disclaimer is not warranted because sufficient evidence can be obtained by testing the movements.

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