CA Intermediate · Auditing and Ethics · Audit Evidence

During the audit of Sahyadri Engineering Ltd, the auditor attends the physical verification of inventory on 31 March, the balance sheet date, and finds that the management's count instructions are well designed. Which of the following is the correct audit response under SA 501 while observing the count?

The auditor should perform test counts in both directions, from records to the floor and from the floor to the records, and obtain details of cut-off and inventory movements. The auditor observes and tests management's count rather than conducting it or relying only on count sheets afterwards.

1. ARely only on the count sheets prepared by management after the count is over
2. BPerform test counts from the records to the floor and from the floor to the records, and obtain information on cut-off and movement of inventoryCorrect
3. CParticipate in the counting by taking over the counting from management staff
4. DAvoid any test counts to prevent interfering with the count process