Federal Register of Legislation - Australian Government

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ASA 501 Standards/Accounting & Auditing as made
Auditing Standard ASA 501 establishes mandatory requirements and provides explanatory guidance on obtaining sufficient appropriate audit evidence regarding the existence and valuation of inventory in the financial report.
Administered by: Treasury
General Comments: This Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.
Exempt from sunsetting by the Legislation (Exemptions and Other Matters) Regulation 2015 s12 item 18
Registered 12 May 2006
Tabling HistoryDate
Tabled HR22-May-2006
Tabled Senate13-Jun-2006
Date of repeal 26 Nov 2020
Repealed by AUASB Repeal of Superseded Auditing Standards 2020
Table of contents.


                                                                                       (April 2006)

 

 

 

 

Explanatory Statement

 

ASA 501 Existence and Valuation of Inventory

 

 

Issued by the Auditing and Assurance Standards Board

 


Explanatory Statement

Reasons for Issuing ASA 501 Existence and Valuation of Inventory

The Auditing and Assurance Standards Board (AUASB) issues Auditing Standard ASA 501 Existence and Valuation of Inventory, due to the requirements of the legislative provisions explained below.

The Corporate Law Economic Reform Program (Audit Reform and Corporate Disclosure) Act 2004 established the AUASB as an independent statutory body under section 227A of the Australian Securities and Investments Commission Act 2001, as from 1 July 2004. Under section 336 of the Corporations Act 2001, the AUASB may make Auditing Standards for the purposes of the corporations legislation. These Auditing Standards are legislative instruments under the Legislative Instruments Act 2003.

Process of making Auditing Standards

Section 1455 of the Corporations Act 2001 and Corporations Regulation 10.5.01 gave interim legal endorsement from 1 July 2004 to the majority of Auditing Standards made by the former Auditing & Assurance Standards Board of the Australian Accounting Research Foundation. The AUASB has reviewed the Auditing Standards and has proceeded to make them as legally enforceable Auditing Standards under the Corporations Act 2001.

The Auditing Standards have been made also in accordance with the Financial Reporting Council’s Strategic Direction to the AUASB dated 6 April 2005, pursuant to section 225 of the ASIC Act.

The Strategic Direction, inter alia, provides that the AUASB develops Auditing Standards that:

·                     have a clear public interest focus and are of the highest quality;

·                    use the International Standards on Auditing (ISAs) of the International Auditing and Assurance Standards Board (IAASB) as a base;

·                    conform with the Australian regulatory environment; and

·                    are capable of enforcement.

In implementing the Strategic Direction, the AUASB has undertaken a process of thorough review and revision that has:

·                     addressed the enforceability of mandatory requirements;

·                     clarified auditors’ obligations under the Auditing Standards;

·                     provided for sector neutrality in the Auditing Standards; and

·                     included other amendments as necessary.

Purpose of Auditing Standard ASA 501 Existence and Valuation of Inventory

The purpose of Auditing Standard ASA 501 is to establish mandatory requirements and to provide explanatory guidance on obtaining sufficient appropriate audit evidence regarding the existence and valuation of inventory in the financial report.

Auditing Standard ASA 501 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.

Operative Date

The Auditing Standard is operative for financial reporting periods commencing on or after 1 July 2006.

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

The main differences between ASA 501 and AUS 506 are that in ASA 501:

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)        the auditor is required to take or observe physical counts on an alternative date when planned attendance was not possible due to unforseen circumstances (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 requirements to attend physical inventory counting in order to more effectively achieve the same objectives.

Consultation prior to issuing this Auditing Standard

The AUASB has consulted publicly as part of its due process in developing this Auditing Standard. Exposure Draft ED 5/05 Proposed Auditing Standard: Existence and Valuation of Inventory was issued on 31 August 2005 with a 45 day comment period. Submissions were received by the AUASB and it has considered these submissions as part of the development and finalisation of this Auditing Standard.