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

During the audit of Meenakshi Foods Pvt Ltd, the auditor finds that the physical inventory count was done on 10 April, nine days after the balance sheet date of 31 March, and the auditor could not attend on 31 March. Under SA 501, what is the most appropriate response?

The auditor should attend the count on 10 April and test the inventory movements between 31 March and that date. SA 501 requires evidence that changes between the count date and reporting date were properly recorded. A disclaimer is unwarranted when adequate alternative procedures can be performed.

  1. AAccept management's book inventory at 31 March without further work as the count was close to year-end
  2. BAttend the count on 10 April and perform procedures on movements between 31 March and the count date to check that they were properly recordedCorrect
  3. CIssue a disclaimer of opinion because the count was not on the balance sheet date
  4. DAsk management to value inventory at the lower of cost and a count made at the next year-end

Explanation

Where the count is held on a date other than the reporting date, the auditor must obtain evidence that changes in inventory between the count date and the reporting date were correctly recorded. Attending the count and testing the roll-back of movements achieves this. A disclaimer is premature since alternative procedures are available.

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