Document ID: chunk:federal_register_of_legislation:F2023C01122:body:0:p7
Version: federal_register_of_legislation:F2023C01122
Segment Type: other
Provision Reference: 
Character Range: 18562–21683

physical inventory counting at a date, or dates, other than the date of the financial report is appropriate for audit purposes.  ASA 330 establishes requirements and provides guidance on substantive procedures performed at an interim date.[5]

A10.         Where a perpetual inventory system is maintained, management may perform physical counts or other tests to ascertain the reliability of inventory quantity information included in the entity's perpetual inventory records.  In some cases, management or the auditor may identify differences between the perpetual inventory records and actual physical inventory quantities on hand; this may indicate that the controls over changes in inventory are not operating effectively.

A11.         Relevant matters for consideration when designing audit procedures to obtain audit evidence about whether changes in inventory amounts between the count date, or dates, and the final inventory records are properly recorded include:

           * Whether the perpetual inventory records are properly adjusted.

           * Reliability of the entity's perpetual inventory records.

           * Reasons for significant differences between the information obtained during the physical count and the perpetual inventory records.

Attendance at Physical Inventory Counting Is Impracticable (Ref: Para. 7)

A12.         In some cases, attendance at physical inventory counting may be impracticable.  This may be due to factors such as the nature and location of the inventory, for example, where inventory is held in a location that may pose threats to the safety of the auditor.  The matter of general inconvenience to the auditor, however, is not sufficient to support a decision by the auditor that attendance is impracticable.  Further, as explained in ASA 200,[6] the matter of difficulty, time, or cost involved is not in itself a valid basis for the auditor to omit an audit procedure for which there is no alternative or to be satisfied with audit evidence that is less than persuasive.

A13.         In some cases where attendance is impracticable, alternative audit procedures, for example inspection of documentation of the subsequent sale of specific inventory items acquired or purchased prior to the physical inventory counting, may provide sufficient appropriate audit evidence about the existence and condition of inventory.

A14.         In other cases, however, it may not be possible to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory by performing alternative audit procedures.  In such cases, ASA 705 requires the auditor to modify the opinion in the auditor's report as a result of the scope limitation.[7]

Inventory under the Custody and Control of a Third Party

Confirmation (Ref: Para. 8(a))

A15.         ASA 505[8] establishes requirements and provides guidance for performing external confirmation procedures.

Other Audit Procedures (Ref: Para. 8(b))

A16.         Depending on the circumstances, for example where information is obtained that raises doubt about the integrity and objectivity of the third