Evidences for inventory

If inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding the existence and condition of inventory by

a	Physical counting	Attending physical inventory counting, unless impracticable
i	Management instruction	Evaluate management's instructions and procedures for recording and controlling the results of the entity's physical inventory counting,
ii	Observation	observe the performance of management's count procedures,
iii	Inspection	inspect the inventory
iv	Perform test	perform test counts
b	Check accuracy of counting	performing audit procedures over the entity's final inventory records to determine whether they accurately reflect actual inventory count result
c	Disagreement between management and legal council	here is disagreement between management and the entity's external legal counsel. Ordinarily, such meetings require management's permission and are held with a representative of management in attendance.

Matters Relevant in Planning of Physical Inventory Counting

Matters relevant in planning at physical inventory counting include, for example:

1	Nature of inventory
2	Stages of completion of work in progress
3	The risks of material misstatement related to inventory.
4	The nature of the internal control related to inventory.
5	Whether adequate procedures are expected to be established and proper instructions issued for physical inventory counting.
6	The timing of physical inventory counting.
7	Whether the entity maintains a perpetual inventory system.
8	The locations at which inventory is held, including the materiality of the inventory and the risks of material misstatement at diﬀerent locations, in deciding at which locations attendance is appropriate
9	Whether the assistance of an auditor’s expert is needed.

Physical Inventory Counting Conducted Other Than At The Date Of The Financial

If physical inventory counting is conducted at a date other than the date of the financial statements, the auditor should, in addition to the procedures required, perform audit procedures to obtain audit evidence about whether changes in inventory between the count date and the date of the financial statements are recorded properly

. If The Auditor Is Unable To Attend Physical Inventory Counting Due To Unforeseen Circumstances

If the auditor is unable to attend physical inventory counting due to unforeseen circumstances, the auditor should make or observe some physical counts on an alternative date and perform audit procedures on intervening transactions.

Physical Inventory Counting Is Impractical

If attendance at physical inventory counting is impracticable, the auditor should perform alternative audit procedures to obtain sufficient appropriate audit evidence regarding the existence and condition of inventory. If it is not possible to do so, the auditor should modify the opinion in the auditor's report.

Litigations And Claims

The auditor shall design and perform audit procedures in order to identify litigation and claims involving the entity which may give rise to a risk of material misstatement, including:

Inquiry of management

Inquiry of management and, with others within the entity, including in-house legal counsel

Review of minutes

Reviewing minutes of meetings of those charged with governance and correspondence between the entity and its external legal counsel; and

Review of legal expenses

Reviewing legal expense accounts.

If The Auditor Assess A Risk Of Material Misstatement Regarding Litigation Or Claims – Communication With The Entity’s External Legal Counsel

If the auditor 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 auditor shall, in addition to the procedures required by other SAS, seek direct communication with the entity's external legal counsel.

The auditor shall do so through a letter of inquiry requesting the entity's external legal counsel to communicate directly with the auditor.

If law, regulation or the respective legal professional body prohibits the entity's external legal counsel from communicating directly with the auditor, the auditor shall perform alternative audit procedures.

In certain circumstances, the auditor also may judge it necessary to meet with the entity's external legal counsel to discuss the likely outcome of the litigation or claims.

This may be the case, for example, where:

1	Significance of risk	The auditor determines that the matter is a significant risk.
2	Complexity	The matter is complex.
3	Disagreement between management and external legal council	here is disagreement between management and the entity's external legal counsel. Ordinarily, such meetings require management's permission and are held with a representative of management in attendance.

Initial Audit Engagement

There can be two reason for this

1	Prior period statements NOT audited	The financial statements for the prior period were not audited
2	Audited by predecessor	The financial statements for the prior period were audited by a predecessor auditor

Objective Of Auditor With Respect To Opening Balances – In Conducting An Initial Audit Engagement

The objective of the auditor, in conducting an initial audit engagement, including a reaudit engagement, is to obtain sufficient appropriate audit evidence regarding opening balances about whether

1	Material misstatement in opening balances	Opening balances contain misstatements that materially affect the current period's financial statements and
2	Appropriateness of accounting policies.	Appropriate accounting policies reflected in the opening balances have been consistently applied in the current period's financial statements or changes thereto are appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework.

Audit Procedures Regarding Open Balances

The auditor should obtain sufficient appropriate audit evidence about whether the opening balances contain misstatements that materially affect the current period's financial statements by

1	Opening balance correctly brought forward	Determining whether the prior period's closing balances have been correctly brought forward to the current period or, when appropriate, have been restated;
2	Application of accounting policies	Determining whether the opening balances reflect the application of appropriate accounting policies;
3	Audit procedure performed in current year is relevant to check opening balances.	Evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances and performing one or both of the following
i	Review predecessor audit document	When the prior year financial statements were audited, reviewing the predecessor auditor's audit documentation to obtain evidence regarding the opening balances
ii	Current audit procedure is capble to provide evidence of opening balances or not	Evaluating whether audit procedures performed in the current period provide evidence relevant to the opening balances;
iii	Performing specifically for opening balances .	Performing specific audit procedures to obtain evidence regarding the opening balances

Consistency Of Accounting Policies Relating To Opening Balances

The auditor should obtain sufficient appropriate audit evidence about whether the accounting policies reflected in the opening balances have been consistently applied in the current period's financial statements and whether changes in the accounting policies have been appropriately accounted for and adequately presented and disclosed in accordance with the applicable financial reporting framework

Audit Conclusions And Reporting In Relation To Opening Balances

There can be two situation for conclusion of audit because of opening balances.

Unable to obtain sufficient audit evidence in regard of opening balances

If the auditor is unable to obtain sufficient appropriate audit evidence regarding the opening balances, the auditor should express a qualified opinion or disclaim an opinion on the financial statements.

Opening balances has some material misstatement

If the auditor concludes that the opening balances contain a misstatement that materially affects the current period's financial statements, and the effect of the misstatement is not appropriately accounted for or adequately presented or disclosed, the auditor should express a qualified opinion or an adverse opinion

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