Consider these audit procedures for Inventory count during Covid-19
COVID- 19 outbreak has resulted into many unprecedented challenges that are being faced by the companies and their auditor’s in a number of areas. One of such crucial area is inventory, which is typically audited to a significant degree through physical verification tests relating to its existence, valuation, etc. by evaluating the conditions existed at the client’s site. Under the present circumstances of lockdown, travel restrictions, etc. it seems to be impractical for management of an entity to conduct physical counts of inventory and for auditor’s to attend those counts. Pandemic attack has made inventory testing a huge challenge for auditors, particularly for entities with March 31 fiscal year end.
Along with complying the Standard on Auditing (SA) 501 Audit Evidence - Specific Considerations for Selected Items, The Companies (Auditor’s Report) Order, 2016 (CARO 2016) also requires the auditor to report on physical inventory counts. Looking forward, the auditors should seek to perform alternative audit procedures to determine the inventory counts. Recently, guidance on ‘Key Considerations on Going Concern Assessment amid COVID- 19’ was issued providing guidelines on how to analyze the impact of COVID- 19 outbreak on going concern basis for an entity. On similar lines, guidance on Key Audit Considerations for Physical Inventory Verification amid COVID- 19 has been issued to provide an overall guidance on such alternative audit procedures which can be undertaken by the auditor. Few of such alternative procedures as explained in guidance are:-
a) Using the work of internal auditor
b) Engaging other Chartered Accountant(s) to attend physical verification
c) Use of technology in inventory counting, etc.
Besides providing guidance on auditor’s responsibility for physical inventory count, it also provides the instances of possible implications on the auditor’s report in different circumstances. The bottom line is that while these are challenging times with respect to observing inventory on-site, there are alternative ways for auditor’s to get sufficient and appropriate audit evidence about inventory that will allow them to perform a successful, high quality audit.