Attendance at stocktaking
Consultation draft of a Practice Note 'Attendance at stocktaking'
The above consultation draft has been considered by ACCA's Auditing Technical Committee. We welcome this document as it updates guidance dating back to 1983 and integrates it into the APB's current approach to pronouncements.
We appreciate that, in accordance with APB's convergence strategy, no attempt has been made to implement ISA 501 'Audit Evidence - Additional Considerations for Specific Items' as a standard. The consultation draft does, however, make appropriate reference to that document.
In our view, the guidance has been presented at the right level of detail and will be helpful to auditors and other stakeholders.
We would like to make some suggestions on the detail of the document concerning the drafting of paragraphs 4 and 24. Paragraph 24 refers back to paragraph 4 which introduces two concepts which are that, as well as providing evidence relating to the existence assertion, attendance can (1) enhance an understanding of the business and (2) provide other evidence. The bullet points in paragraph 4 illustrate that other evidence can relate to (a) assertions of completeness and valuation (b) other matters (specifically cut off and the accounting and control system). Paragraph 24 summarises paragraph 4 and provides a list of matters that the auditors may wish to observe. These take the form of bullet points under the headings: 'understanding the business', 'completeness and valuation of stocks', and 'accounting and control systems'.
Our suggestions are:
(1) For completeness, paragraph 4 should refer to 'ownership' as this assertion is mentioned in paragraph 2.
(2) Paragraph 4 splits 'understanding of the business' and 'accounting and control systems' when these could be combined. It would be better to make separately the points that (1) attendance at stocktaking can provide evidence relating to other assertions for stocks, (2) physical attendance for stocktaking can conveniently be used to gather evidence (a) for overall purposes and (b) for specific account balances/transactions and assertions other than stock/work-in-progress - we have in mind procedures such as (1) surprise cash count, (2) payroll employee identity check, or (3) fixed asset inspection. It is necessary to mention this material early in the document as it will affect planning, not just paragraphs under the heading 'During the stocktake'. Paragraph 24 could then amplify and provide examples that may be relevant to the attendance without too much repetition.
(3) The list in paragraph 24 is too specific and should be made broader by inserting an appropriate introduction to the specifics. For example instead of 'the production process', refer to 'business processes, for example the production process'; similarly refer to 'law and regulation for example pollution, or health and safety'.