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CA Intermediate · Auditing and Ethics · Audit Evidence

During the audit of Sundaram Pharma Ltd, the auditor requests a physical stock count attendance, but the auditor is appointed after the year-end and cannot attend the count on the balance sheet date. Inventory is material. What is the most appropriate response under SA 501?

The auditor should perform alternative procedures, such as testing subsequent sales and rolling back movements from a later count to the balance sheet date. SA 501 requires this when attendance is impracticable, and a modified opinion arises only if sufficient appropriate evidence still cannot be obtained.

  1. AReport a qualified opinion immediately without any further procedures
  2. BPerform alternative procedures such as testing subsequent sales and rolling back movements from a later count to the balance sheet date, to obtain sufficient appropriate evidenceCorrect
  3. CAccept the management's inventory valuation certificate as sufficient evidence
  4. DDisclaim an opinion only because the count was missed

Explanation

SA 501 requires the auditor to perform alternative procedures when attendance at the count is impracticable, such as examining subsequent sales or reconciling later counts back to the year-end. Only if sufficient evidence still cannot be obtained should the auditor modify the opinion. A management certificate alone is not sufficient, and immediate modification is premature.

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