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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Evidence and testing considerations

Larkin Co's year-end is 31 December. The auditor could only attend an inventory count on 6 January, because of a scheduling conflict, and the client's perpetual records are reliable. Inventory is material. The count on 6 January found 12,400 units. Between 1 and 6 January, 900 units were received and 1,500 units were dispatched, all recorded. What quantity should the auditor expect the records to show at 31 December, and what is the auditor's required audit concern about the count date?

The year-end quantity should be 13,000 units, found by working back from the 12,400 counted: subtract the 900 received and add back the 1,500 dispatched. Because the count was after the year-end, the auditor must also test the recorded inventory movements between the count date and the year-end.

  1. A12,400 units; no further procedures are needed because the count was after year-end
  2. B13,000 units; the auditor performs procedures on movements between the count date and the year-endCorrect
  3. C11,800 units; the auditor performs procedures on movements between the count date and the year-end
  4. D12,400 units; the auditor must withdraw because the count was not on the year-end date

Explanation

Work back from the count: 31 Dec quantity + receipts 900 - dispatches 1,500 = 12,400, so 31 Dec = 12,400 - 900 + 1,500 = 13,000. Check forward: 13,000 + 900 - 1,500 = 12,400. ISA 501 and ISA 330 require procedures on movements between the count and the year-end. The 11,800 option reverses the signs of the adjustments.

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