Guide to Using International Standards on Auditing in - IFAC

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184 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Paragraph # Relevant Extracts from ISAs 501.5 If physical inven<strong>to</strong>ry counting is conducted at a date other than the date of the financial statements, the audi<strong>to</strong>r shall, in addition <strong>to</strong> the procedures required by paragraph 4, perform audit procedures <strong>to</strong> obtain audit evidence about whether changes in inven<strong>to</strong>ry between the count date and the date of the financial statements are properly recorded. (Ref: Para. A9-A11) 501.6 If the audi<strong>to</strong>r is unable <strong>to</strong> attend physical inven<strong>to</strong>ry counting due <strong>to</strong> unforeseen circumstances, the audi<strong>to</strong>r shall make or observe some physical counts on an alternative date, and perform audit procedures on intervening transactions. 501.7 If attendance at physical inven<strong>to</strong>ry counting is impracticable, the audi<strong>to</strong>r shall perform alternative audit procedures <strong>to</strong> obtain sufficient appropriate audit evidence regarding the existence and condition of inven<strong>to</strong>ry. If it is not possible <strong>to</strong> do so, the audi<strong>to</strong>r shall modify the opinion in the audi<strong>to</strong>r’s report in accordance with ISA 705. (Ref: Para. A12-A14) 501.8 If inven<strong>to</strong>ry under the cus<strong>to</strong>dy and control of a third party is material <strong>to</strong> the financial statements, the audi<strong>to</strong>r shall obtain sufficient appropriate audit evidence regarding the existence and condition of that inven<strong>to</strong>ry by performing one or both of the following: (a) Request confirmation from the third party as <strong>to</strong> the quantities and condition of inven<strong>to</strong>ry held on behalf of the entity. (Ref: Para. A15) (b) Perform inspection or other audit procedures appropriate in the circumstances. (Ref: Para. A16) Where inven<strong>to</strong>ry is material <strong>to</strong> the financial statements, the audi<strong>to</strong>r would address its existence and condition as set out below. Exhibit 15.4-1 Procedure Attend the Physical Count Confirm/Inspect Inven<strong>to</strong>ry Held by Others Description • Evaluate management’s instructions for recording/controlling count results; • Observe performance of management’s count procedures; • Inspect the inven<strong>to</strong>ry and perform test counts; • Reconcile changes in inven<strong>to</strong>ry between the count date and period end; and • Perform alternative procedures if a physical count is impracticable. • Request confirmations as <strong>to</strong> quantities/condition of inven<strong>to</strong>ry held; and • Perform inspection or other appropriate audit procedures.
185 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Inquiry Regarding Litigation and Claims Paragraph # Relevant Extracts from ISAs 501.9 The audi<strong>to</strong>r shall design and perform audit procedures in order <strong>to</strong> identify litigation and claims involving the entity which may give rise <strong>to</strong> a risk of material misstatement, including: (Ref: Para. A17-A19) (a) Inquiry of management and, where applicable, others within the entity, including in-house legal counsel; (b) Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and (c) Reviewing legal expense accounts. (Ref: Para. A20) 501.10 If the audi<strong>to</strong>r assesses a risk of material misstatement regarding litigation or claims that have been identified, or when audit procedures performed indicate that other material litigation or claims may exist, the audi<strong>to</strong>r shall, in addition <strong>to</strong> the procedures required by other ISAs, seek direct communication with the entity’s external legal counsel. The audi<strong>to</strong>r shall do so through a letter of inquiry, prepared by management and sent by the audi<strong>to</strong>r, requesting the entity’s external legal counsel <strong>to</strong> communicate directly with the audi<strong>to</strong>r. If law, regulation or the respective legal professional body prohibits the entity’s external legal counsel from communicating directly with the audi<strong>to</strong>r, the audi<strong>to</strong>r shall perform alternative audit procedures. (Ref: Para. A21-A25) 501.11 If: (a) management refuses <strong>to</strong> give the audi<strong>to</strong>r permission <strong>to</strong> communicate or meet with the entity’s external legal counsel, or the entity’s external legal counsel refuses <strong>to</strong> respond appropriately <strong>to</strong> the letter of inquiry, or is prohibited from responding; and (b) the audi<strong>to</strong>r is unable <strong>to</strong> obtain sufficient appropriate audit evidence by performing alternative audit procedures, the audi<strong>to</strong>r shall modify the opinion in the audi<strong>to</strong>r’s report in accordance with ISA 705. 501.12 The audi<strong>to</strong>r shall request management and, where appropriate, those charged with governance <strong>to</strong> provide written representations that all known actual or possible litigation and claims whose effects should be considered when preparing the financial statements have been disclosed <strong>to</strong> the audi<strong>to</strong>r and accounted for and disclosed in accordance with the applicable financial reporting framework. To identify litigation and claims which may give rise <strong>to</strong> a risk of material misstatement, the audi<strong>to</strong>r would perform the procedures set out below. Exhibit 15.4-2 Procedure Make Inquiries and Review Relevant Documents Description • Inquire of management and others; • Review minutes of meetings of those charged with governance; • Review correspondence between the entity and its legal counsel; and • Review legal expense accounts.
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Guide to Using International Standards on Auditing in - IFAC

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