4/9/2023 0 Comments Qbserve video![]() ![]() With cycle counting, the client doesn’t perform one huge year-end, wall-to-wall count in most cases. And then they go back to their perpetual system and prepare the counts, make corrections, and things like that. A cycle count procedure is where the client essentially has controls in place where on a periodic basis - a lot of times, quarterly - they will conduct their own test counts of just a portion of their inventory. The other more traditional alternative procedure can be performed if the client is using a cycle count procedure and a perpetual inventory system. That’s one option, although I don’t think anybody knows how soon we might be able to do that. Actually, this is not an extraordinarily rare thing for auditors to do, especially in situations where, for example, you’re engaged to perform an audit after year end, so you weren’t even engaged when the inventory was counted. You could effectively roll back the inventory to the year end, even if it was counted subsequent to year end. The auditor could count inventory and observe it at that point and then perform additional testing on the sales subsequent to year end as well as subsequent purchases, which probably aren’t extensive in this environment. Auditors can work with the client and think whether it would be possible and realistic to postpone the inventory counting and observation to a later date, when perhaps the stay-at-home orders might be lifted and people might feel safe visiting the client site. The most obvious alternative may work if the client doesn’t have a looming deadline to have its audit report submitted by a certain date. But I think it’s important for auditors to recognize that there are alternatives. They all have their pros and their cons, of course. But there are probably a handful of alternatives available. ![]() Of course, the generally accepted procedure that has been there for years has been stood on its head when you can’t actually get to the client’s site to observe the inventory. And I think in the vast majority of cases, historically, it has just been generally accepted that the way that an auditor can test the existence of that inventory is to physically observe its counting. When you step back at a principles level, what are those requirements really driving at? For any organization, any business where inventory is material, the existence of that inventory is going to be a relevant assertion. 11–.14, and then a series of application paragraphs that go along with it. Those are in AU-C Section 501, Audit Evidence - Specific Considerations for Selected Items, Paragraphs. We do have standards directly related to physical observation of inventory that we need to comply with. There are situations coming very quickly here, where by law we may not be able to go out to a client location and physically observe inventory like we’ve done in the past for March 31 year ends and probably extending out to June 30 year ends. Here are his comments, which come with the caveat that they do not necessarily apply to audits of public companies under PCAOB standards. And in many places, most businesses are legally prohibited from opening their doors.īut AICPA Chief Auditor Bob Dohrer, CPA, CGMA, said it is possible for auditors to observe inventory without being on-site, under generally accepted auditing standards issued by the AICPA Auditing Standards Board. ![]() ![]() Clients are telling auditors not to come on site visits. Editor’s note: The coronavirus pandemic has made inventory testing a huge challenge for auditors, particularly for client entities with a March 31 fiscal year end.Īudit firms are requiring staff to work from home and banning staff travel. ![]()
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