O'Reilly logo

Interpretation and Application of International Standards on Auditing by Steven Collings

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

19

ISA 501 (REDRAFTED) AUDIT EVIDENCE — SPECIFIC CONSIDERATIONS FOR SELECTED ITEMS

ISA 501 deals with three specific items that may be contained within a set of general purpose financial statements and for which the auditor may need to obtain sufficient appropriate audit evidence. It deals with specific considerations for:

  • inventory;
  • litigation and claims; and
  • segment information.

In terms of financial statement assertions, ISA 501 looks to address whether, at the reporting date, inventory actually exists and whether the values placed on the inventory are appropriate with regard to the condition of the inventory. Litigation and claims pertaining to the entity need to be complete and segment information needs to be correctly presented and disclosed within the financial statements.

INVENTORY

In a lot of cases, inventory is material to the financial statements of a reporting entity and, where inventory is material to the financial statements, it is important that the auditor obtains sufficient appropriate audit evidence to confirm its existence and valuation. Inventory is an audit area that is open to manipulation and is often subject to varying degrees of estimation.

The Use of Directional Testing and Inventory

Widely recognised, but less-used in today’s modern audit practice, is the use of directional testing. Directional testing is a concept which was developed in the early 1980s and is conceptually straight forward because it is based on the principles of double-entry. Debit ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required