Question

Is an auditor required to observe inventory counts of a public U.S. corporation and what is the PCAOB reference citation?

Answer 1

Answer:

(a)
Assessment of inventory management is a widely recognized audit technique. An impartial auditor that expresses an opinion while just not doing it should keep in mind that he does have the responsibility of explaining the assertion made. Because inventory amounts are calculated exclusively through the way of inventory verification and all estimates are rendered as of the balance sheet date or even as of a particular date within such a fair period before or after the balance-sheet date, it's indeed normally important for the audit firm to be present at the time of the count and, with sufficient inspection, checks, and inquiries, to conform with the closing date.

Whether inventories are in the possession of public U.S corporations and other external trustees, the auditor will usually receive direct written approval from the guardian. If these inventories constitute a substantial proportion of existing or full properties, the auditor must implement several of the following steps, as he deems reasonable under the circumstances, in order to achieve fair certainty regarding their presence.

Check the holder's procedures for examining the influence and reviewing the efficiency of the storeman.
Acquire an impartial accountant's opinion on the management processes of the storeman relating to the care of the goods and, where appropriate, the collection of receipts, or apply alternate procedures in the store to obtain fair confirmation that perhaps the information obtained from the storeman is accurate.
Recognize the physical inspection of the products, if possible, and fair.
If the store receipts were pledged as collateral, check with the creditors the relevant details of the pledged receipts.

(b)
The Public Sector Accounting Supervisory Board (PCAOB) 1 provision refers to audit reports as well as other obligations applicable to public corporations as well as other issuers. It contains the meanings of terminology and the basic specifications of the PCAOB 1. Used in the standard, the term applies to all public accounting companies affiliated with the PCAOB and their affiliates. Staff Audit Procedure Warnings identify recent, evolving, or otherwise notable situations that can impact how auditors perform audits in compliance with current PCAOB guidelines and applicable regulations. Staff questions and answers set out the views of staff on matters relating to the application of the PCAOB requirements. The PCAOB provides responses to questions to support auditors to enforce the requirements of the Board and oversees the personnel of the Board.

Citation of Literature:
(1) Lori Shefchik Bhaskar, Assimilation of internal control and audits of financial statements: are two audits preferable than one? , SSRN Electronic Journal, 10.2139 / ssrn.2809680, 2016.

(2) Veena L Brown, Mandatory Disclosure of Audit Engagement Partners: Effects on Audit Quality, SSRN Electronic Journal, 10.2139/ssrn.2831730, (2016).

(3) Monika Causholli, Theresa Floyd, Nicole Thorne Jenkins, Scott Soltis, The Ties that Bind: Knowledge-Sharing Networks and Auditor Job Performance, SSRN Electronic Journal, 10.2139/ssrn.3084942, (2017).

(4) Jennifer Li, Fayez A. Elayan, Thomas O. Meyer, Parunchana Pacharn, Options Backdating: Market Overreaction and Management Motives, SSRN Electronic Journal, 10.2139/ssrn.1741364, (2011).


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