ISA 501 - Audit Evidence—Specific Considerations for Selected Items

ISA 501 DEALS with SPECIFIC considerations by the auditor in obtaining sufficient appropriate audit evidence in accordance with ISA 330, ISA 500 and other relevant ISAs with respect to certain aspects of ‘Inventory‘, ‘Litigation and Claims‘ involving the entity and ‘Segment Information‘ in an Audit of Financial Statements.

Table of Contents

ISA 501 – Introduction
- 1. Scope of this ISA
- 2. Effective Date
ISA 501 – Objective
ISA 501 – Requirements
Synopsis

ISA 501 – Introduction

1. Scope of this ISA

ISA 501 deals with SPECIFIC considerations by the auditor in obtaining sufficient appropriate audit evidence.

2. Effective Date

This ISA is EFFECTIVE for audits of financial statements for periods beginning on or after December 15, 2009.

ISA 501 – Objective

The Objective of the ‘Auditor’ is to obtain sufficient appropriate audit evidence regarding the:

Existence and condition of ‘Inventory’;
Completeness of ‘Litigation and Claims’ involving the entity; AND
Presentation and disclosure of ‘Segment Information’ in accordance with the applicable financial reporting framework.

ISA 501 – Requirements

1. Inventory

If inventory is MATERIAL to the ‘Financial Statements’, the auditor shall OBTAIN sufficient appropriate audit evidence regarding the existence and condition of inventory by:

(a) Attendance at ‘Physical Inventory Counting‘, unless impracticable to:
– EVALUATE Management’s instructions and procedures for recording and controlling the results of the entity’s physical inventory counting;
– OBSERVE the performance of Management’s count procedures;
– INSPECT the inventory; AND
– PERFORM test counts.

(b) Performing ‘Analytical Procedures‘ over the entity’s final inventory records to determine whether they accurately reflect actual inventory count results.

If ‘Physical Inventory Counting’ is conducted at a date OTHER than the date of financial statements, the auditor shall PERFORM audit procedures to obtain audit evidence about whether changes in inventory between the count date and the date of financial statements are properly recorded.

If the auditor is UNABLE to attend ‘Physical Inventory Counting‘ due to unforeseen circumstances, the auditor shall MAKE or OBSERVE physical counts on an alternate date, and perform audit procedures on intervening transactions.

If attendance at ‘Physical Inventory Counting‘ is impracticable, the auditor shall PERFORM alternative audit procedures to obtain sufficient appropriate audit evidence. If it is not possible, the auditor shall MODIFY the auditor’s report in accordance with ISA 705.

If inventory under the ‘custody and control of third party‘ is Material to the financial statements, the auditor shall OBTAIN sufficient appropriate audit evidence by performing one or both of the following:

REQUEST confirmation from the third party as to the quantities and condition of inventory held on behalf of the entity;
PERFORM inspection or other audit procedures appropriate in the circumstances.

2. Litigation 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:

(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

2.1 Written Representations

The ‘Auditor’ shall REQUEST Management and where appropriate those charged with governance to 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 to the auditor as per applicable financial reporting framework.

3. Segment Information

The ‘Auditor’ shall OBTAIN sufficient appropriate audit evidence regarding the presentation and disclosure of ‘Segment Information’ in accordance with the applicable financial reporting framework by:

(a) OBTAINING an understanding of the Methods used by Management in determining segment information;
– Evaluating whether such Methods are likely to result in disclosure; AND
– Where appropriate, testing the application of such Methods.

(b) PERFORMING analytical procedures or other audit procedures appropriate in the circumstances.

Synopsis

ISA 501 ‘Audit Evidence—Specific Considerations for Selected Items‘ DEALS with specific considerations by the auditor in obtaining sufficient appropriate audit evidence with respect to certain aspects of ‘Inventory‘, ‘Litigation and Claims‘ involving the entity and ‘Segment Information‘ in an Audit of Financial Statements.

[500-599] Audit Evidence