John Selwood's Q & A's
Questions this month focus on audit evidence relating to stock, and land and buildings
Question: An audit client has subcontracted out the holding of all its stock. Previously it used its own warehouse, which has been sold, and now it is using a company that holds stock for a number of different suppliers. This stockholder undertakes the year-end stocktake and produces the year-end stock valuation. Now that an expert is being used to count stock, do I need to attend the year-end stocktake? The stock is located at the opposite end of the country from my office, so not needing to attend the stocktake would be welcome.
Answer: Arriving at the answer to this question is somewhat involved. First, there are two broad audit issues relating to stock – existence and valuation. The audit of the stock valuation will not be particularly different where the stock is held by a third party. As an aside, I am not sure that I would regard the stockholder as ‘management’s expert’ from an audit perspective, unless the valuation of stock requires particular expertise. I suspect that management will finalise the stock valuation, in terms of stock provisions, and this is often where the audit risk is. The fact that a third party assisted with the valuation might affect audit risk, but it is unlikely to change the nature of the audit procedures to be planned.
Find out more
Members of the Audit and Assurance Faculty and subscribers to Faculties Online
To read the complete article, subscribe to Faculties Online or join the Audit and Assurance Faculty and get access to this article in full, plus all future publications, events, webinars and services.