Page 170 - CA Inter Audit PARAM
P. 170
CA Ravi Taori
this cost in the form of amortization is charged to the accounts, the profit or loss would not be correctly
ascertained and the values of intangible asset would be shown at higher amounts.
The auditor should:
Amortisation Related
• Verify that the entity has charged amortization on all intangible assets;
• Verify that the amortization method used reflects the pattern in which the asset’s future economic
benefits are expected to be consumed by the entity.
Impairment Related
• The auditor should also verify whether the management has done an impairment assessment to
determine whether an intangible asset is impaired. For this purpose, the auditor needs to verify
whether the entity has applied AS 28 - Impairment of Assets for determining the manner of reviewing
the carrying amount of its intangible asset, determining the recoverable amount of the asset to
determine impairment loss, if any.
QNO-- B/S (Inventory, Valuation of Raw Material & Consumables) New Course – (N23E/J25R)
AIFS.36.55 Bhaskar CNO –AIFS-P2.060
"Narrate the audit procedures to be performed by an auditor in order to ascertain that the Raw materials
and consumables are valued appropriately and as per generally accepted accounting policies and practices"
Answer Audit procedures performed by an auditor in order to ascertain that raw material and consumables are
valued appropriately in accordance with generally accepted accounting policies and practices are as under:
1. Ascertain what elements of cost are included e.g. carriage inward, non-refundable duties etc.
2. If standard costs are used, enquire into basis of standards; how these are compared with actual
costs and how variances are analyzed and accounted for/ treated in accounting records.
3. Test check cost prices used with purchase invoices received in the month(s) prior to counting.
4. Follow up valuation of all damaged or obsolete inventories noted during observance of physical
counting with a view to establishing a realistic net realizable value.
QNO-- Inventory of Audit of Damaged / Obsolete Items New Course – (J25M)
AIFS.36.60 Bhaskar CNO – AIFS-P2.040
During the audit of HST Ltd., CA Mukund, the auditor, observed a significant volume of unsold electronic
parts as inventory that had remained stagnant for more than two years. He noted that the company was
facing difficulty selling these items due to the changes in the market. Additionally, some parts were
damaged, and others were discontinued models. CA Mukund also ensured that the inventory was
accurately valued to ensure proper financial reporting. You are required to outline the detailed audit
procedures that are generally undertaken when auditing such inventories which at the time of observance
of physical counting were noted as being damaged or obsolete.
Answer Follow up for items that are obsolete, damaged, slow moving and ascertain the possible realizable value of
such items. Carefully examine the valuation of obsolete and damaged inventory.
For the purpose, request the client to provide inventory ageing split and follow up for any inventories which
at time of observance of physical counting were noted as being damaged or obsolete.
• Compare recorded costs with replacement costs.
• Examine vendor price lists to determine if recorded cost is less than current prices.
• Calculate inventory turnover ratio. Obsolete inventory may be revealed if ratio is significantly lower.
• In manufacturing environments, test overhead allocation rates and ensure that only direct labour,
direct material and overhead have been included.
• Verify the correct application of lower-of- cost-or-net realizable value principles.
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