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CMA Intermediate · Corporate Accounting and Auditing · Audit Report and Reporting under CARO

Under clause 3(ii)(a) of CARO 2020, the auditor reports on discrepancies noticed on physical verification of inventory. What is the threshold stated in the clause?

The clause requires reporting of discrepancies of 10% or more in the aggregate for each class of inventory, and whether they were properly dealt with in the books. The threshold applies class-wise, not to total inventory or to individual items.

  1. ADiscrepancies of 5% or more in the aggregate for each class of inventory
  2. BDiscrepancies of 10% or more in the aggregate for each class of inventoryCorrect
  3. CDiscrepancies of 10% or more of total inventory value of the company only
  4. DDiscrepancies of 15% or more in each individual item of inventory

Explanation

Clause 3(ii)(a) asks whether any discrepancies of 10% or more in the aggregate for each class of inventory were noticed and, if so, whether they were properly dealt with in the books. The test is applied class by class, not on total inventory or item by item, so the 5%, 15% and total-inventory options are wrong.

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