Audit Evidence- Specific Considerations for Selected Items

Introduction

This SA deals with specific consideration by an auditor to obtain sufficient & appropriate audit evidences
with aspect to certain aspects of:-

Inventory;

Litigations & Claims;

Segment Information

Auditor’s Duty in regards to Inventory To obtain sufficient & appropriate audit evidences regarding the
existence & condition of inventory

Attendance at physical Inventory Counting

The auditor should attend physical inventory counting, if practicable for him.

Matters to be considered by the auditor while planning for attend at physical inventory counting:-
Nature of Inventory;

Stage of completion of work in progress;

Risk of material misstatement;

Materiality of Inventory;

Nature of Internal Controls in regards to inventory

Timing of physical inventory reporting;

Procedures established for counting by the management,

Requirement of any other person such as Expert etc.

Procedure to be followed by the Auditor at physical count

Evaluate Management’s instructions & procedures

The auditor should evaluate management procedures for recording & controlling such asv Method of
collection of used physical inventory counts records,

v Accounting for unused physical inventory counts records;

v The accurate identification of the stage of completion of work in progress;

v Procedures used to estimate physical quantities

Observing the performance of management’s count procedures.

Inspection of Inventory v The auditor should ascertain whether inventory actually exists physically or
not.v The inspection helps in identifying obsolete, damaged or ageing inventory.

Perform Test Counts v The best example of performing test counts is tracing items selected from
management’s count records to the physical inventory and tracing items selected from the physical
inventory to management’s count records.v It provides audit evidence about the completeness & the
accuracy of those records.

Some Cases to be dealt by auditor Auditor’s Duty in such case

If the physical inventory counting is conducted at the date other than the date of financial statements

To ascertain whether the changes in inventory between the count date and the date of the financial
statements are properly recorded

if the auditor is unable to attend physical inventory counting due to unforeseen circumstances v
Observe some physical counts on an alternative date;&v Perform audit procedures on intervening
transactions.

where the Attendance at Physical Inventory Counting Is Impracticable v Adopt alternative audit
procedures;v In case the auditor in unable to adopt alternative audit procedures, the auditor shall
modify his opinion in the auditor’s report.

Where the inventory is under the custody & control of the 3rd party v Obtain external confirmation
from that party on behalf of the entity in regards to the quantity

& the condition of the inventory.v Perform inspection or other appropriate audit procedures.

Auditor’s Duty in regards to Litigations & Claims

Litigation means an action brought in court to enforce a legal right or process of taking legal action.

Auditor’s Duty Audit Procedures

To identify litigations & claims v Inquiring with Management, in-house legal counsel;

v Reviewing minutes of meetings of those TCWG & correspondence between the entity & its external
counsel;

v Reviewing legal expense accounts

If the auditor assesses the risk of material misstatement due to existing litigation or claims v Seek
direct communication with the entity’s external legal counsel through a letter of enquiry;v In case law,
regulation or the respective legal professional body prohibits the entity’s external legal counsel from
communicating directly with the auditor, the auditor shall :- Perform alternative audit procedures such
as obtain legal advice from experts.
To obtain written representation from Who will obtain Auditor

Where appropriate, TCWG

Matter on which Written representation shall be taken All known actual or possible litigation or claim
having material impact on financial statements have been:-

Disclosed to the auditor &

Properly accounted for & disclosed in accordance with the applicable FRF.