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Coronavirus: The impact on 31 March stock takes

Following the Government’s announcement to stay at home and only travel for work if absolutely necessary, it is likely that there will be a significant impact on stock attendance for those clients with a 31 March year end. So, what can be done?

ISA (UK) 501 Audit Evidence—Specific Considerations for Selected Items requires the auditor to attend a stock take where stock is material. However, paragraph 6 says:

“If the auditor is unable to attend physical inventory counting due to unforeseen circumstances, the auditor shall make or observe some physical counts on an alternative date, and perform audit procedures on intervening transactions”

It must be the case that the COVID-19 pandemic is categorised as “unforeseen circumstances”. As a result, I can see a few different options for auditors to consider here:

  • The client could consider extending their accounting period to later in the year, to say 30 June 2020 (assuming they have not extended their accounting period in the last 5 years). This could be a one year only change, as the period could be shortened again back to 31 March 2021.
  • Rather than attending the stock count at the year end date, a stock count is performed later in the year. If this is the case, then additional procedures must be carried out to obtain evidence about the movements between the count date and the year end (i.e. rollback testing). Perpetual stock systems with strong controls in place obviously make performing such procedures much easier. If the client is closed due to the Coronavirus outbreak, the rollback procedures should be pretty easy, as there should be minimal movement in stock between the year end date and the date that a count is carried out.
  • Depending on the nature of the client’s stock and whether anybody is actually working at the client’s premises, use of video calling (Skype or Facetime for instance) could be used to provide some level of assurance.
  • Having attended a post year end stock take, if accompanying roll back procedures cannot be performed as the client’s records are insufficient to provide sufficient evidence over the existence of stock as at the year end, a qualified opinion arising from a limitation of scope should be given.

ICAEW’s Audit and Assurance Faculty guide “Limitation on the scope of audit” walks through all of the required changes in the audit report arising from such a qualification, including example wording for the Basis of Qualified opinion paragraph. The ICAEW helpsheet (for Audit and Assurance Faculty members) can be found here:

Please call the Technical Helpline if you would like to discuss this matter further.

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