Main changes from AUS 506 (July 2002) ExMain changes from AUS 506 (July 2002) Existence and Valuation of Inventory

Main changes from AUS 506 (July 2002) Existence and Valuation of Inventory

The main differences between this Auditing Standard and the Auditing Standard issued by the Auditing & Assurance Standards Board of the Australian Accounting Research Foundation, AUS 506 (July 2002) Existence and Valuation of Inventory, are that in this Auditing Standard:

1. The word ‘shall’, in the bold-type paragraphs, is the terminology used to describe an auditor’s mandatory requirements, whereas an auditor’s degree of responsibility is described in AUS 506 by the word ‘should’.
2. The explanatory guidance paragraphs provide guidance and illustrative examples to assist the auditor in fulfilling the mandatory requirements, whereas in AUS 506 some obligations are implied within certain explanatory paragraphs. Accordingly, such paragraphs have been redrafted to clarify that the matter forms part of the explanatory guidance.
3. The following implied obligation in AUS 506 has been elevated and re-stated as a specific mandatory requirement:

(a) if the entity uses procedures to estimate the physical quantity of inventory that is material, the auditor shall design and perform audit procedures to be satisfied with the reasonableness of those procedures (paragraph 19).

4. The following additional mandatory requirement, not contained in AUS 506, is included:

(a) if unable to attend the physical inventory count on the date planned due to unforeseen circumstances, the auditor shall take or observe some physical counts on an alternative date and, when necessary, perform audit procedures on intervening transactions (paragraph 13).

5. The auditor is required to attend physical inventory counting unless impracticable (paragraph 11), whereas in AUS 506 in exceptional circumstances, the auditor may judge it necessary to depart from the requirement to attend physical inventory counting in order to more effectively achieve the same objectives.

AUTHORITY STATEMENT

The Auditing and Assurance Standards Board (AUASB) makes Auditing Standard ASA 501 Existence and Valuation of Inventory, as set out in paragraphs 1 to 33, pursuant to section 227B of the Australian Securities and Investments Commission Act 2001 and section 336 of the Corporations Act 2001.

This Auditing Standard is to be read in conjunction with the Preamble to AUASB Standards which sets out the intentions of the AUASB on how the Auditing Standards are to be understood, interpreted and applied.

The mandatory requirements of this Auditing Standard are set out in bold-type paragraphs.

Dated 28 April 2006 M H Kelsall
Chairman - AUASB