Auditing and Assurance Standards and Guidance

Auditing Standards (Ireland)

FRC ISAs (UK and Ireland) applicable for periods beginning on or after 15 December 2010 but before 17 June 2016

ISA (UK and Ireland) 501 Audit evidence - specific considerations for selected items

Application and Other Explanatory Material

Inventory

Attendance at Physical Inventory Counting (Ref: Para. 4(a) )

A1.	Management ordinarily establishes procedures under which inventory is physically counted at least once a year to serve as a basis for the preparation of the financial statements and, if applicable, to ascertain the reliability of the entity's perpetual inventory system.

A2.	Attendance at physical inventory counting involves:

Inspecting the inventory to ascertain its existence and evaluate its condition, and performing test counts;

Observing compliance with management's instructions and the performance of procedures for recording and controlling the results of the physical inventory count; and

Obtaining audit evidence as to the reliability of management's count procedures.

These procedures may serve as test of controls or substantive procedures depending on the auditor's risk assessment, planned approach and the specific procedures carried out.

A3.	Matters relevant in planning attendance at physical inventory counting (or in designing and performing audit procedures pursuant to paragraphs 4-8 of this ISA (UK and Ireland)) include, for example:

The risks of material misstatement related to inventory.

The nature of the internal control related to inventory.

Whether adequate procedures are expected to be established and proper instructions issued for physical inventory counting.

The timing of physical inventory counting.

Whether the entity maintains a perpetual inventory system.

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. ISA (UK and Ireland) 600⁴ deals with the involvement of other auditors and accordingly may be relevant if such involvement is with regards to attendance of physical inventory counting at a remote location.

Whether the assistance of an auditor's expert is needed. ISA (UK and Ireland) 620⁵ deals with the use of an auditor's expert to assist the auditor to obtain sufficient appropriate audit evidence.

⁴ ISA (UK and Ireland) 600, "Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors)."

⁵ ISA (UK and Ireland) 620, "Using the Work of an Auditor's Expert."