Enquiry:

I have been appointed as auditor of the Private Limited Company as at October 31, 2016 but the predecessor auditor did not conduct the audit of the company for the year ended June 30, 2016. I have communicated the predecessor auditor and found that they had observed physical stock check as at June 30, 2016. They also agreed to share with me working papers subject to client’s permission.

A query is do I still need to modify my opinion with respect to observation of stock check?

Opinion:

The Committee would like you to refer paragraphs 4 to 8 of ISA 501 ‘Audit Evidence’ which specifically addresses your matter.

Auditor is responsible for giving an opinion on the financial statement prepared in the term for which he/she is appointed. In your inquired scenario, the ultimate responsibility will remain of the existing auditor, no matter whether predecessor auditor agreed to share their working papers.

The Committee is of the view that, if the auditor is unable to attend the physical inventory count due to unforeseen circumstances, the auditor should take or observe physical count on an alternative date and, when necessary, perform tests of intervening transactions.

Where attendance is impracticable, due to factors such as the nature and location of the inventory, the auditor should consider whether alternative procedures provide sufficient appropriate audit evidence of existence and condition to conclude that the auditor need not make reference to a scope limitation. For example, documentation of the subsequent sale of specific inventory items acquired or purchased prior to the physical inventory count may provide sufficient appropriate audit evidence.

With regard to modification of opinion, the Committee would like to refer paragraph 7 of ISA 501 for guidance.

(December 14, 2016)