CA Intermediate · Auditing and Ethics · Audit Evidence

Mehta & Co. is auditing Sunrise Foods Ltd. For a material inventory balance, the auditor was engaged only after the year-end and could not attend the physical count on 31 March. Management's count sheets exist. What is the most appropriate audit response under SA 501?

The auditor should perform alternative procedures, such as observing a later count and rolling back to the year-end, or testing subsequent sales, to gain sufficient appropriate evidence on inventory. Only if that is impossible should the opinion be modified under SA 705; relying on management certificates alone is inadequate.

1. AIssue an unmodified report because count sheets are available
2. BPerform alternative procedures, such as testing subsequent sales and roll-back of a later count, to obtain sufficient appropriate evidence on year-end quantities; if not possible, modify the opinionCorrect
3. CDisclaim an opinion immediately without performing any procedures
4. DAsk management to certify the closing quantities and rely on the certificate alone