Audit Evidence — Specific Considerations for Selected …

1 Audit Evidence 497. AU-C Section 501. Audit Evidence Speci c Considerations for Selected Items Source: SAS No. 122; SAS No. 136; SAS No. 142; SAS No. 143; SAS No. 144. Effective for audits of financial statements for periods ending on or after December 15, 2012, unless otherwise indicated. Introduction Scope of This Section .01 This section addresses specific Considerations by the auditor in obtain- ing sufficient appropriate Audit Evidence , in accordance with section 330, Per- forming Audit Procedures in Response to Assessed Risks and Evaluating the Audit Evidence Obtained; section 500A, Audit Evidence ; section 540, Auditing Accounting Estimates and Related Disclosures; and other relevant AU-C sec- tions, regarding certain aspects of (a) investments in securities and derivative instruments; (b) inventory; (c) litigation, claims, and assessments involving the entity; (d) segment information in an Audit of financial statements; and (e) use of management's specialists.

2 [As amended, effective for audits of financial state- ments for periods ending on or after December 15, 2022, by SAS No. 142. As amended, effective for audits of financial statements for periods ending on or after December 15, 2023, by SAS No. 143.]. Effective Date .02 This section is effective for audits of financial statements for periods ending on or after December 15, 2012. Objective .03 The objective of the auditor is to obtain sufficient appropriate Audit Evidence regarding the a. valuation of investments in securities and derivative instru- ments;. b. existence and condition of inventory;. c. completeness of litigation, claims, and assessments involving the entity.

3 D. presentation and disclosure of segment information, in accor- dance with the applicable financial reporting framework; and e. work of management's specialists. [As amended, effective for audits of financial statements for periods ending on or after December 15, 2022, by SAS No. 142. As amended, effective for audits of financial statements for periods ending on or after December 15, 2023, by SAS. No. 144.]. 2021, AICPA AU-C 498 Audit Evidence De nition .04 For purposes of GAAS, the following term has the meaning attributed as follows: Management's specialist. An individual or organization possessing expertise in a field other than accounting or auditing, whose work in that field is used by the entity to assist the entity in preparing the financial statements.

4 [Paragraph added, effective for audits of financial statements for periods ending on or after December 15, 2022, by SAS No. 142.]. Requirements Investments in Securities and Derivative Instruments (Ref: par..A1 .A4). Investments in Securities When Valuations Are Based on the Investee's Financial Results (Excluding Investments Accounted for Using the Equity Method of Accounting)..05 When investments in securities are valued based on an investee's fi- nancial results, excluding investments accounted for using the equity method of accounting, the auditor should obtain Audit Evidence regarding the investee's financial results. including as applicable in the circumstances, performing the following procedures: (Ref: par.)

5 A5 .A9). a. Obtain and read available financial statements of the investee and the accompanying Audit report, if any, including determin- ing whether the report of the other auditor is satisfactory for this purpose. b. If the investee's financial statements are not audited, or if the au- dit report on such financial statements is not satisfactory to the auditor, apply, or request that the investor entity arrange with the investee to have another auditor apply, appropriate auditing procedures to such financial statements, considering the materi- ality of the investment in relation to the financial statements of the investor entity. c. If the carrying amount of the investment reflects factors that are not recognized in the investee's financial statements or fair values of assets that are materially different from the investee's carrying amounts, obtain sufficient appropriate Audit Evidence regarding such amounts.

6 D. If the difference between the financial statement period of the entity and the investee has or could have a material effect on the entity's financial statements, determine whether the entity's management has properly considered the lack of comparability and determine the effect, if any, on the auditor's report. (Ref: par..A10). If the auditor is not able to obtain sufficient appropriate Audit Evidence in sup- port of the investee's financial results because of an inability to perform ap- propriate procedures, the auditor should determine the effect on the auditor's opinion, in accordance with section 705, Modifications to the Opinion in the In- dependent Auditor's Report.

7 [Paragraph renumbered by the issuance of SAS. AU-C 2021, AICPA. Audit Evidence 499. No. 142, July 2020. As amended, effective for audits of financial statements for periods ending on or after December 15, 2023, by SAS No. 143.]..06 With respect to subsequent events and transactions of the investee oc- curring after the date of the investee's financial statements but before the date of the auditor's report, the auditor should obtain and read available interim financial statements of the investee and make appropriate inquiries of man- agement of the investor to identify such events and transactions that may be material to the investor's financial statements and that may need to be recog- nized or disclosed in the investor's financial statements.

8 (Ref: par..A11) [Para- graph renumbered by the issuance of SAS No. 142, July 2020.]. [Investments in Derivative Instruments and Securities Measured or Disclosed at Fair Value]. [.07 .11] [Paragraphs deleted by the issuance of SAS No. 143, July 2020.][1]. Inventory .12 If inventory is material to the financial statements, the auditor should obtain sufficient appropriate Audit Evidence regarding the existence and condi- tion of inventory2 by a. attending physical inventory counting, unless impracticable, to (Ref: par..A21 .A23). i. evaluate management's instructions and procedures for recording and controlling the results of the entity's physi- cal inventory counting, (Ref: par.)

9 A24). ii. observe the performance of management's count proce- dures, (Ref: par..A25). iii. inspect the inventory, and (Ref: par..A26). iv. perform test counts and (Ref: par..A27). b. performing Audit procedures over the entity's final inventory records to determine whether they accurately reflect actual in- ventory count results. (Ref: par..A28 .A31). [Paragraph renumbered by the issuance of SAS No. 142, July 2020.]..13 If physical inventory counting is conducted at a date other than the date of the financial statements, the auditor should, in addition to the proce- dures required by paragraph .12, perform Audit procedures to obtain Audit evi- dence about whether changes in inventory between the count date and the date of the financial statements are recorded properly.

10 (Ref: par..A32 .A34) [Para- graph renumbered by the issuance of SAS No. 142, July 2020.]..14 If the auditor is unable to attend physical inventory counting due to unforeseen circumstances, the auditor should make or observe some physical counts on an alternative date and perform Audit procedures on intervening transactions. [Paragraph renumbered by the issuance of SAS No. 142, July 2020.]. [1] [Footnote deleted by the issuance of SAS No. 143, July 2020.]. 2 Section 330, Performing Audit Procedures in Response to Assessed Risks and Evaluating the Au- dit Evidence Obtained, addresses the auditor's procedures to respond to the assessed risks of material misstatements at the relevant assertion level.