Page 106 - CA Final Audit Titanium Full Book. (With Cover Pages)

CA Ravi Taori
Reconciliation: Conduct audit procedures over the entity's final inventory records to confirm they accurately
reflect the actual inventory count results. This could serve as a test of controls or substantive procedures,
depending on the auditor's risk assessment and planned approach.

(CNO-SA501.060) Special Case 1 - Counting Is Conducted At A Date Other Than Year End
Other Date: Physical inventory counting can be conducted at a date other than the date of the financial
statements.
Auditor's Role (Additional Audit Procedures): Auditor to perform audit procedures as discussed above to
obtain evidence. Further Ensure changes in inventory between count date and date of financial statements are
properly recorded.
Perpetual Records: Use it for examining changes, for that ensure following:
•Reliability of perpetual Records (PR)
•Reasons for Significant Difference between PR & Actuals
•Adjusted changes in reconciliation

(CNO-SA501.080) Special Case 2 - Counting Is Impracticable
If physical Inventory counting is Impracticable
Reason for Impractical Inventory counting.
1.Evaluate Nature of Inventory & Location of Inventory
2A. Threats to safety – Acceptable reason
2B. General Inconvenience - Not acceptable reason
2C. Difficulty Time Cost involved – Alternative audit procedure giving persuasive evidence available – Can
avoid attending physical verification
Perform alternative audit procedure.
• Comparison with previous year
• Inspect prior purchase documents.
• Inspect documents of subsequent sale
• Internal Auditors report
Alternative procedure doesn't give SAAE.
• If not possible to give S&A evidence regarding existence & Condition of Inventory
• Modify opinion as per SA 705

(CNO-SA501.100) Special Case 3 - Custody and Control of A Third Party
If Inventory is in custody control of Third Party: For material Inventory obtain SAAE by following:
(Shortcut Easy to Difficult Procedures)
1. External Confirmation: External Confirmation from TP regarding Quantity & Condition- Apply SA 505
2. Other Audit Procedure- Depending on circumstances Integrity/objectivity of TP
• Inspecting Documents
• Requesting confirmation from other parties when pledged as collateral (warehouse owner)
• Obtaining service auditor or another auditor report on adequacy of ICS on counting & adequate safeguard
• Arranging for another auditor to attend, TP physical counting.
• Attending physical verification
3. Inspection: Perform Inspection

(CNO-SA501.120) Part 2: - Litigations & Claims / Design & Perform Procedures For Completeness
Litigation And Claims Which May Lead To RMM
The auditor shall design and perform audit procedures in order to identify litigation and claims involving the
entity which may give rise to a risk of material misstatement, including: (RAP)

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