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Standard On Auditing -501 Audit Evidences

Written By Admin on Friday, 6 December 2013 | Friday, December 06, 2013


- CA. Jagjeet Singh

Standard On Auditing -501 Audit Evidences- Specific consideration for selected Item
           






                                         



Introduction

This Standard on Auditing deals with specific considerations by the auditor in obtaining sufficient and appropriate audit evidences in accordance with SA-330, SA-500 (Revised)  and other relevant SAs with respect to certain aspect of 

Inventory.
Litigation and Claim involving the entity.
Segment Information.

Objective of the auditor as envisaged by the SA

The objective of the auditor is to obtain sufficient and appropriate audit evidence regarding the:

Existence and condition of Inventory.
Completeness of litigation and claims involving the entity.
Presentation and disclosure of segment information in accordance with applicable financial reporting framework.

Auditor responsibilities w.r.t. Inventory

When inventory is considered material to the financial statement , the auditor shall obtain sufficient and appropriate audit evidences regarding existence and condition of inventory by

Attendence at physical inventory counting, unless impracticable to
(i) Evaluate management’s instruction and procedures for recording and controlling the result of entity’s physical inventory counting.
(ii) Observe the performance of management’s count  procedures.
(iii) Inspect the inventory.
(iv) Perform the test count.

Perform audit procedures over the entity’s final inventory records to determine whether they accurately reflect actual inventory count result.

Auditor’s duty when physical inventory  is counted at a date other than date of financial statement: 
The auditor shall ,in addition to procedures given above, perform the audit procedures to obtain audit evidences about whether changes in inventory between count date and date of financial statement is properly recorded.

Auditor’s duty when auditor is unable to attend physical inventory counting due to unforeseen circumstances: The auditor shall make or observe some physical count on an alternative date, and perform audit procedures and perform audit procedures on intervening transactions.

Auditor’s Duty when attendance at physical inventory counting is impossible:
The auditor shall perform alternative audit procedures to obtain sufficient and appropriate audit evidence regarding existence and condition of inventory. If it is not possible then auditor shall modify the opinion in auditor’s report.

Auditor’s  duty when inventory is under the custody and control of a third party: 
When such inventory is material to the financial statement the auditor shall obtain sufficient and appropriate evidence regarding existence and condition of the inventory by performing one or both of the following:

a) Request confirmation from third party as to quantities and condition of inventory held on the behalf the entity.
b) Perform inspection or other audit procedures appropriate in the circumstances.

Auditor’s responsibilities w.r.t. Litigation and claim

The auditor shall design and perform audit procedures in order to identify litigation and claim involving the entity which may give rise to a risk of material misstatement including :
(i) Inquiry of the management and wherever applicable, others within the entity , including in-house legal counsel.
(ii) Review the minutes of meeting of those charged with governance and correspondence between entity and external legal counsel.
(iii) Reviewing the legal expense account.

Auditor’s duty when auditor assess the risk of material misstatement regarding litigation and claim that have been identified       OR

When audit procedure performed indicate that other material litigation or claim may exists:  Auditor shall, in addition to the procedures as envisaged by other SAs, seek direct communication with entity’s external legal counsel. The auditor shall do so through a letter of inquiry, prepared by management, sent by the auditor , requesting the entity’s external legal counsel to directly communicate with the auditor. If law, or regulation or the respective professional body prohibits the entity’s external legal counsel from communicate directly with the auditor, The auditor shall perform alternative audit procedures.
              If:
Management refuses to give the auditor permission to communicate or meet with external legal counsel or entity’s external legal counsel refuse to respond appropriatel to the letter of inquiry, or is prohibited from responding.
The auditor is unable to obtain sufficient and appropriate audit evidence by performing alternative audit procedures .

The auditor shall modify the opinion in auditor’s report in accordance with SA 705.

Written representation: The auditor shall request management and where appropriate those charged with governance to provide written representation that all known litigation and claims whose effect should be considered when preparing financial statement have been disclosed to the auditor and appropriately accounted for and disclosed in accordance with applicable financial reporting frame.

Auditor’s responsibilities w.r.t. to Segment Information

The auditor shall obtain sufficient and appropriate audit evidence regarding the presentation and disclosures of segment information in accordance with applicable financial reporting framework by:

Obtaining an understanding of methods used by the entity in determining the segment information
Evaluate whether such methods are likely to result in disclosures in accordance with applicable Financial Reporting Framework
Perform analytical procedures or other audit procedures as appropriate in the circumstances

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