## SA-501: Audit Evidence — Specific Considerations for Selected Items
### Objective
Obtain sufficient and appropriate audit evidence regarding:
a. Existence and condition of inventory
b. Completeness of litigation and claims involving the entity
c. Presentation and disclosure of segment information per the applicable FRF
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### A. Verification of Inventories
Responsibility for inventory: Management
Duty of Auditor: Attend Physical Verification (PV) on the balance sheet date (typically 31st March)
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#### Special Situations:
| Situation | Auditor's Action |
|---|---|
| PV conducted on an alternative date (not BS date) | Attend PV on alternative date + perform bridging procedures (evidence about changes between count date and BS date) |
| Unable to attend due to unforeseen circumstances | Attend on an alternative date + perform bridging procedures |
| Physical verification becomes impracticable | Perform alternative procedures (e.g., invoices, debtor/creditor confirmations, GST portal verification). If not possible → issue modified opinion under SA 705 |
| Inventory held by a third party | (1) Request confirmation from third party re: quantities and condition; (2) Perform inspection or other procedures |
> NOT considered impracticable: General inconvenience, time involved, or cost involved.
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#### Inventory Held by Third Party — Additional Procedures:
- Inspect documentation for TP-held inventory (e.g., warehouse receipts)
- Request confirmation from other parties if inventory is pledged as collateral (e.g., from a bank)
- Attend, or arrange for another auditor to attend, the third party's physical count (if practicable)
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### B. Litigation and Claims
#### General Procedures:
1. Inquiry with management and in-house legal counsel
2. Review minutes of TCWG meetings (board meetings)
3. Examine correspondence between entity and external legal counsel
4. Review legal expense account
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#### Specific Procedure — Direct Confirmation (DC) from External Legal Counsel (ELC):
Send a general letter of inquiry when:
- There is RMM with respect to litigation and claims, OR
- Audit procedures indicate other material litigation exists (e.g., unusually high legal expenditure)
If ELC does not respond → Send a specific letter of inquiry containing:
1. List of all litigation and claims
2. Management's assessment of outcome of each litigation/claim (including estimated cost)
3. Request for ELC to:
- Confirm reasonableness of management's estimates
- Provide additional information if the list is incorrect or incomplete
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#### Meeting with External Legal Counsel:
Required when:
a. There is a significant risk related to litigation
b. The matter is complex
c. There is disagreement between management and ELC
Conditions for the meeting:
- With management's permission
- With a representative of management present
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#### If Management Refuses to Communicate or Meet ELC:
a. Auditor shall perform alternative procedures
b. If alternative procedures are insufficient → issue a modified opinion
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### C. Segment Information
Key Principle: The auditor's responsibility regarding segment information is in relation to the FS as a whole. The auditor is NOT required to perform procedures to express an opinion on segment information as a standalone basis.
#### How to Obtain Segment Evidence:
a. Understand management's methods for segment reporting:
- Evaluate whether methods provide disclosure per the applicable FRF
- Test the application of such methods
b. Perform ARP or other procedures
#### Matters Relevant to Segment Audit:
1. Sales, transfers, and charges between segments (inter-segment pricing)
2. Comparison with budgets and expected results
3. Allocation of assets and costs among segments
4. Consistency with prior periods