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ICAI has issued guidelines for physical verification of stock amid COVID -19 lockdown

ADMIN by ADMIN
May 16, 2020
in Business & Other News
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ICAI has issued guidelines dt. 13.05.2020 relating to physical verification of stock during lockdown and Covid – 19.

Some of the important points mentioned are as follows:

Physical verification of inventory is the responsibility of management of the entity. Management is required to establish procedures under which inventory is physically counted at least once a year to ensure existence, condition and support valuation of inventory.

The Companies (Auditor’s Report) Order, 2016 (CARO 2016) also requires auditors to comment on “Whether physical verification of inventory has been conducted at reasonable intervals by the management and whether any material discrepancies were noticed and if so, whether they have been properly dealt with in the books of account”.

SA 500, “Audit Evidence” prescribes that the objective of the auditor is to design and perform audit procedures in such a way as to enable the auditor to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.

With scenarios like lockdown, travel restrictions etc. as imposed by Government of India, physical inventory counting would be challenging and in some cases it would be impracticable. Possible challenges in this regard are discussed below.

Management unable to conduct physical inventory counting as on the date of financial statements:

In such a scenario, management should inform the auditors and those charged with governance the reasons of not conducting the inventory counting.

Physical inventory counting conducted by management at a date other than the date of financial statements:

Where an auditor decides to observe the physical inventory counting at a date other than the date of the financial statements, the auditor would need to comply with the procedures given in paragraphs 5 and 6 of SA 501 read with paragraphs A9 to A11 of SA 501.

Alternative audit procedures where it is impracticable for auditors to attend physical inventory counting

Due to various restrictions imposed due to COVID-19 outbreak, in certain cases it could be impracticable for auditors to physically attend the inventory counting. In such cases, the auditor would need to comply with the procedures given in paragraph 7 of SA 501 read with paragraphs A12 to A14 of SA 501.

The use of alternative audit procedures may include one or more of the following:

Using the work of internal auditor.

Engaging other Chartered Accountant(s) to attend physical verification.

Use of technology in inventory counting: Virtual attendance, Leveraging technology to help with inventory counting.

If you wish to read it in detail CLICK HERE.

 

This article is just for information purpose and are personal views of the author. It is always advisable to hire a professional for practical execution. If you need assistance you can ask a question to our expert and get the answer within an hour or post a comment about your views on the post and also subscribe to our newsletter for latest weekly updates.

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