ISA 501 - Audit Evidence (Special Conisderations)

Question 1

ISA 501

ISA 501 - AUDIT EVIDENCE - SPECIAL CONSIDERATIONS

Inventory counts

Answer 1

1/ Year-end count - Attend count
2/ Just B4/after Year-end count - Attend count

Re: 1&2
− Evaluate client’s inventory count instructions
(at least 1 month before the count).
Notify client so that instructions can be improved.
− Record cut off document numbers (the last GRN & DO before the count begins)
− Observe the performance of the count to ensure count instructions are followed & there is no movement of inventory during the count.
− Perform test counts & agree to inventory records.
− Note the condition of the inventory.

Re: 2

ADDITIONAL PROCEDURE:
- Audit the movement schedule to see if
quantities have been rolled forward / backward
to the quantity at year end.

3/ Continuous count - Attend at least 2 counts in
the year
− Review count sheets to ensure that items counted on the day are THE SAME as the PLAN.

ADDITIONAL PROCEDURE:
- Review client’s PLANS for count to see if every item of inventory is counted at least once in the year.
- Review COUNT RESULTS to see if quantity in the records agree to physical quantity

4/ Inventory at 3rd party location - Attend count (if material) Request confirmation from 3rd party (if not material)

Question 2

ISA 501

ISA 501 - AUDIT EVIDENCE - SPECIAL CONSIDERATIONS

Litigation & claims

Answer 2

1/ To IDENTIFY existence of claims
▪ Enquire from management
(including in-house legal counsel)
▪ Review minutes of meetings of TCWG.

▪ Review correspondence between the entity & its

external legal counsel; and

▪ Review legal expense accounts.

2/ If claims currently exist:
▪ Obtain DIRECT COMMUNICATION
with the entity’s external legal counsel
for their opinion on the:
-outcome of the case & the basis of their conclusion

-possible amount payable / receivable

	
[This is normally done through a letter of enquiry
prepared by management and	
sent by the auditor that requests that the entity’s
external legal counsel communicates directly with the
auditor]	 If:		 (a)	management refuses to give the auditor permission to
communicate or meet with the entity’s external legal
counsel,	
or the entity’s external legal counsel is prohibited
from responding; and	 (b)	the auditor is unable to obtain sufficient appropriate
audit evidence by performing alternative audit
procedures,	
the auditor shall modify the opinion in the auditor’s
report in accordance with ISA 705
(provided the impact is MATERIAL)