Audit issues (Covid-19) – Year end Stock takes

Following the governments announcements over the past few weeks restricting travel and work to only those classed as essential the audit community has been assessing the implications on those year-end duties.

Stock values in the year-end financial statements are usually audited through physical verification testing at the balance sheet date, however with the current situation that we find ourselves in attending year end stock takes are likely to be both impracticable and unsafe for external auditors and also your own employees.

So what are the options if you have not been able to do a physical stock take?

Options would have to be looked as on a case by case basis but the following may be possible:

  • Virtual stock take attendance
    • This could be an option via video calling, however how accurate this work can be and also how practical it is needs to be considered- you may also not have employees physically on site to enable this to be done
  • Changing the stock take date
    • Once government restrictions are lifted it may be that the stock take attendance can be carried out at a later date and further work completed to roll stock valuation records back to the year-end balance sheet stock value, for this records of any deliveries in or out should be kept.
    • It also may be that an interim stock take was attended and the results of this work can be used and rolled forward to the year-end balance sheet stock value
    • These options should work well if trading has been significantly reduced or the premises have closed temporarily.
    • It might also be possible to take some reliance on internal stock takes that have taken place throughout the year. Whilst overall reliance couldn’t be placed on these they may help inform the overall picture.
  • Extending the accounting period
    • It could be worth considering extending the year end to enable sufficient testing to be completed, however there are other implications to consider with this, such as VAT/Tax alignment and if the accounting period has been changed previously.

What impact may that have on the audit opinion on the statutory accounts?

If we are unable to attend the year-end stock take and cannot obtain reasonable assurance that the year-end stock value included in the balance sheet is accurate then the audit opinion may have to be modified. This would refer to the limitation in scope of work due to Covid-19.

We will be in touch with all of our audit clients as their year-end approaches to discuss options and what we can do but if you have any questions in the meantime please don’t hesitate to contact one of the team.

Posted in Blog, Covid-19.