NFRA Highlights the Importance of the Presence of Statutory Auditor at Stock-taking in Accordance with SA 501
- Blog|News|Account & Audit|
- 2 Min Read
- By Taxmann
- |
- Last Updated on 12 July, 2023
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The National Financial Reporting Authority (NFRA) received information from the Office of the Registrar of Companies (RoC) and subsequently issued an order against a Chartered Accountant (CA) who served as the Engagement Partner (EP) in the statutory audit of a company involved in manufacturing and trading garments. The EP has been accused of multiple audit failures, which include insufficient audit evidence regarding the existence and condition of inventory, failure to identify related parties and disclose related party transactions, and failure to obtain external confirmations for trade receivables and trade payables balances. NFRA has critically analyzed the replies of the auditor to the allegations and accordingly concluded.
a) The auditor is required to attend the physical inventory counting as it forms a considerable part of the financial statement. Also, no working papers were found in the audit file evidencing that the alternative audit procedures were performed by the EP after he failed to perform physical inventory counting on the reporting date. This is a clear violation of SA 501.
b) The company has made all of its sales to a related party, and this same party had been disclosed as a related party in the annual report of an earlier year. However, auditor failed to identify the related party and to check the accuracy of related party disclosures and compliance with AS 18 and Ind AS 24.
c) The auditor failed to obtain direct confirmation from parties having a significant and material balance of trade receivables and trade payables. Moreover, the auditor failed to perform alternative audit procedures in the absence of confirmations, as required by SA 505.
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