Skip to content

CA Intermediate · Auditing and Ethics · Audit Evidence

Rao & Co is auditing Himalaya Steel Ltd. The company's inventory of ₹8 crore is held at a third-party warehouse in another state, and the auditor could not attend the physical count at year end. The auditor was appointed after the year end. Which response best meets SA 501?

The auditor should perform alternative procedures such as observing or test counting inventory at a later date and testing movements between that date and the year end, ideally with confirmation from the warehouse. Management representation alone is insufficient, and modification arises only if evidence remains inadequate.

  1. ARely only on the management representation letter on quantities
  2. BPerform or observe some physical counts on a later date, and test the transactions between the count date and the balance sheet date, to obtain sufficient appropriate evidenceCorrect
  3. CConfirm only the company's purchase records for the year
  4. DReport a qualified opinion without performing any procedure

Explanation

Where attendance at the count is impracticable or the auditor was appointed later, SA 501 requires alternative procedures, such as observing a later count and testing intervening transactions, and confirmation with the custodian. A representation letter is not sufficient on its own. Modification of opinion is considered only if sufficient evidence still cannot be obtained.

Did you get it right without looking?

One question tells you little. A timed set on Audit Evidence shows your real accuracy, how long you take and where you lose marks.

Practise Audit EvidenceFree diagnostic mock

More Audit Evidence questions