ICAI Guidance Note on Physical Inventory Verification– Key Audit Considerations amid COVID-19
ICAI has issued a Guidance Note on Physical Inventory Verification– Key Audit Considerations amid COVID-19 situation to help auditors effectively discharge their obligations.
ICAI Guide on Physical Inventory Verification– Key Audit Considerations amid COVID-19
Physical verification of inventory is the responsibility of management of an entity. Under CARO 2020, the Management of the entity is required to conduct the physical verification of inventory at reasonable intervals. The Auditors are required to opined on several counts, namely, whether the coverage and procedure of such verification by the management is appropriate; whether any discrepancies of 10% or more in the aggregate for each class of inventory were noticed and if so, whether they have been properly dealt with in the books of account etc.
The guide points out that where inventory is material to the Financial statements, the auditor should design and perform audit procedures in such a way as to enable him/her obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base his/her opinion in accordance with SA 500/501 “Audit Evidence” .
The SA-501 provides that when inventory is material to the financial statements, the auditor shall obtain sufficient appropriate audit evidence regarding the existence and condition of inventory by physical verification of inventory unless impracticable. Further the Standard also require auditor to perform audit procedures over the entity’s final inventory records to determine whether they accurately reflect actual inventory count results.
The said Guidance Note acknowledges that COVID-19 situation may lead to challenges for the management of an entity to conduct physical inventory counting and for the auditors to attend these counts.
The guidance Note deals with all the possible challenges in this regard and use of alternative audit procedures including Virtual attendance and use of technology in inventory counting.
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