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Introduction The pandemic coronavirus (COVID-19) has caused significant disruptions in the business operations of companies. These disruptions also pose significant accounting and auditing challenges. Amongst those challenges, one of the challenges for the companies with year-end 31 March 2020 is to conduct a physical inventory count. This could be due to significant health and safety concerns, travel restrictions, lockdown, etc. Inventory count – Key considerations Management of a company is required to establish procedures under which inventory is physically counted at least once a year to serve as a basis for the preparation of the financial statements and, if applicable, to ascertain the reliability of the entity’s perpetual inventory system.

Further Company Auditor’s Report Order (CARO), 2016 requires auditors to comment on ‘Whether at reasonable intervals the management has conducted physical verification of inventory and If any material discrepancies were noticed on physical verification, whether it has been accounted for in books of accounts. When inventory is material to the financial statements, Standard on Auditing (SA) 501, Audit Evidence - Specific Considerations requires an auditor to obtain sufficient and appropriate audit evidence regarding the existence and condition of inventory by: • Attendance at physical inventory counting, unless impracticable to: – Evaluate management’s instructions and procedures for recording and controlling the results of the company’s physical inventory counting – Observe the performance of management’s count procedure – Inspect the inventory – Perform test counts and • Performing audit procedures over the company’s final inventory records to determine whether they accurately reflect actual inventory count results.

Current situation – COVID-19 The COVID-19 outbreak could create a number of potential challenges for management of a company to conduct, and an auditor to attend inventory counts. It is possible that the outbreak may make inventory count challenging, in some cases, impracticable and including attendance by auditors. This may involve companies to re-visit their inventory count strategy and have a discussion with the audit committee, those charged with governance. Physical inventory count amid COVID-19 Chapter 2 This article aims to: Discuss key challenges relating to the physical inventory count amid the COVID-19 outbreak. © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG Internationalâ€), a Swiss entity.

All rights reserved Accounting and Auditing Update - Issue no. 44/2020 | 8 © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG Internationalâ€), a Swiss entity. All rights reserved Possible situations that could arise due to the outbreak are as follows: • Management does not conduct an inventory count on the balance sheet date: There could be a situation when management of a company believe it is not feasible to conduct a physical inventory count, for example, when the locations where inventory is held are closed and warehouse employees are confined to their homes due to a government imposed lockdown.

In this situation, management should inform the auditors and those charged with governance the rationale of not conducting the inventory count. If auditors, audit committee and those charged with governance conclude that management’s explanations appear to be reasonable in the circumstances, then management would need to consider other possibilities e.g. whether it is possible to delay the count to a time when restrictions are lifted, or concerns reduced. However, if it is concluded that management’s explanations do not appear to be reasonable in the circumstances, then there could be an impact on audit, including risk assessment and auditor’s ability to obtain sufficient appropriate audit evidence.

If there are management-imposed scope limitation then auditor would need to communicate this to audit committee and those charged with governance. • Physical inventory conducted at a date other than the date of financial statements: In case the physical count of inventory would be conducted at a date other than the date of financial statements, then, information relating to changes in inventory between the count date and the date of financial statements would be crucial. An entity would need to ensure the effectiveness of the design, implementation and maintenance of controls over changes in inventory to determine whether the conduct of physical inventory counting at a date, or dates, other than the date of the financial statements is appropriate for audit purposes of an entity.

Additional consideration should be given to following factors: – Whether the perpetual inventory records are properly adjusted – Reliability of the entity’s perpetual inventory records – Reasons for differences between the information obtained during the physical count and the perpetual inventory records. Impracticable for an auditor to attend physical count Due to various restrictions imposed currently as part of measures to combat COVID-19 outbreak, in certain cases it could be difficult for auditors to physically attend the inventory count organised by a company. In that case, management would need to demonstrate controls over inventory movements and an auditor should be able to test and place reliance on them.

Auditors would need to perform alternative audit procedures to obtain audit evidence as to the existence and condition of inventory, for example, observing a current physical inventory count and reconciling it to the opening inventory quantities or inspection of documentation of the subsequent sale of specific inventory items acquired or purchased prior to the physical inventory counting. If the challenges persist and auditors are not able to obtain sufficient appropriate audit evidence by performing alternative procedures, then depending on the pervasiveness of the scope limitations, this may result in a modification of opinion in an auditor’s report. If auditors had attended last inventory count, then management would need to provide information to help auditors perform roll forward procedures.

Roll forward procedures for the intervening period may include, among others, the following: • Vouching purchases of inventory during the intervening period to and from perpetual records • Vouching sales of inventory during the intervening period to and from perpetual records • Performing substantive analytical procedures to evaluate sales, gross margin percentages, inventory turnover and/or days sales in inventory • Testing inventory sales and purchases for proper cut- off at period end • Testing the accuracy of the inventory reconciliation to the general ledger at period end, including tests of reconciling items. © 2020 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG Internationalâ€), a Swiss entity.

All rights reserved 9 | Accounting and Auditing Update - Issue no. 44/2020 As the year-end is approaching, companies should at the earliest decide upon the course of action for performing inventory counts, if not done yet. Given the practical challenges, it becomes imperative for auditors and companies to understand the relevant audit considerations and take appropriate actions. This would require a detailed discussion with the audit committee, those charged with governance and the auditors to develop a future course of action. In any of the situation, management would need to provide adequate information along with the controls placed for inventory count and to enable auditors to obtain sufficient and appropriate audit evidence.

An auditor would need to consider whether roll-forward procedures could provide sufficient appropriate audit evidence. Generally, as the length of the roll-forward period increases, the persuasiveness of the audit evidence the previous inventory count combined with roll-forward procedures provides for existence of physical inventory quantities at the reporting date decreases. This is because an auditor can only sample transactions that were recorded during the roll-forward period, and there is a risk that inventory movements may not have been recorded. This risk increases as the roll-forward period gets longer. In addition, roll-forward procedures do not provide evidence as to the condition of inventory at the reporting date.

Use of technology in inventory count In certain situations where physical attendance by auditors is not possible, they may be able to observe the count remotely via video call with the help of technology. An auditor would need to ensure the security on these applications. The auditors would need to understand the technological and practical constraints to observing an inventory count remotely. If auditors are observing a count remotely, they would need to perform the same procedures as if attending in person. Conclusion To all, As mentioned earlier, for your second report you can choose from a variety of topics including: Gardens, Landscape Urbanism, Green Cities, Green Buildings, Roof and/or Vertical Gardens, Minimalism, and Passive/Mixed/ or Full energy modes.

All these topics must relate to architecture’s relation with the larger environment and sustainability. Listed below are a number of architects and buildings that can either become your main topic of research, or, examples used in conjunction with other topics covered during the semester. Please remember that you must find two important sources of information (ideally books) that you must contrast as part of your report investigation. Architect/Author Building/Item Main Reference (book) Hassan Fathy Any major building Architecture of the Poor Buckminster Fuller Buildings and/or patents Several books by or of him Kevin Roche Ford Foundation/ John Deere Kevin Roche + Internet articles John Frazer AA School – Isuu An Evolutionary Architecture (online) Morphosis Diamond Ranch Diamond Ranch High School Fumihiko Maki Hillside Terrace Nurturing Dreams + others Kengo Kuma Hiroshige Museum Architecture of Defeat + others Charles Correa Kanchanjunga, or townhomes Ch. Correa Housing & Urbanization Studio Mumbai Private Houses Studio Mumbai: Praxis Glenn Murcutt Private Houses Several books of him Peter Eisenman Earth projects Cities of Artificial Excavation Junya Ishigami Kait Workshop and others Another Nature + others

Paper for above instructions

The Impact of COVID-19 on Physical Inventory Counts: Challenges and Considerations

Introduction

The COVID-19 pandemic has significantly disrupted business operations globally, leading to unprecedented challenges in accounting and auditing practices. Among the most pressing challenges is the physical inventory count, especially for companies whose financial year ends on 31 March 2020. Health concerns, lockdown restrictions, and travel limitations have complicated inventory management and auditing processes, prompting companies and auditors to rethink their strategies (KPMG, 2020).

Challenges Relating to Physical Inventory Count

1. Health and Safety Concerns: The COVID-19 pandemic has heightened health and safety concerns for both management and auditors. Physical inventory counts necessitate the presence of multiple personnel in confined spaces, which can conflict with health guidelines aimed at reducing virus transmission (PWC, 2020). In response, many organizations have opted to postpone the counts or implement alternative methods to ensure safety.
2. Government-imposed Lockdowns: In several regions, strict government-imposed lockdowns have prevented access to warehouses and inventory storage facilities. This has led some companies to forgo physical inventory counts entirely, relying instead on estimates or previous records (Mazumdar, 2020). However, management must communicate these decisions to stakeholders transparently, as the lack of a physical count can impact the credibility of financial reporting.
3. Impractical Attendance: The inability of auditors to physically attend inventory counts poses significant auditing challenges. According to the Standards on Auditing (SA) 501, auditors are required to obtain sufficient and appropriate evidence regarding the existence and condition of inventory, necessitating their physical presence during counts (Institute of Chartered Accountants of India [ICAI], 2020). COVID-19 restrictions have rendered this requirement impractical in many cases.
4. Discrepancies and Reliability: With the challenges of conducting inventory counts amidst COVID-19, discrepancies may arise between recorded inventory levels and actual counts, casting doubt on the reliability of perpetual inventory systems (Deloitte, 2020). Auditors must carefully consider potential discrepancies, requiring robust controls over inventory movements during the countdown period.

Key Considerations for Management and Auditors

As companies navigate these challenges, several key considerations emerge regarding conducting physical inventory counts:
- Communication with Stakeholders: Management should maintain open lines of communication with auditors, the audit committee, and those charged with governance. If management decides against conducting a physical count, justifications and alternative approaches ought to be discussed to ensure transparency (Ernst & Young, 2020).
- Alternative Procedures: In instances where attendance is impractical, auditors should perform alternative procedures to gather sufficient audit evidence. These may include testing previous inventory records, inspecting documentation related to subsequent sales or purchases, and implementing remote observation techniques using technology (KPMG, 2020).
- Roll-Forward Procedures: To compensate for missing physical counts, management may need to implement roll-forward procedures that include vouching transactions and ensuring reconciliations between inventory records and general ledgers. However, the further away from the reporting date, the less persuasive the audit evidence becomes (McCarthy, 2020).

Utilizing Technology for Remote Observations

In response to social distancing guidelines, technology has emerged as a critical tool for auditors conducting remote inventory observations. Whether through live video streaming or recorded footage, technological solutions facilitate audit procedures while complying with health regulations. However, auditors must assess the security and reliability of technologies used for virtual counts (Collins, 2020).
Auditors who observe inventory counts remotely must still adhere to traditional audit procedures and ensure the effectiveness of technological measures in accurately observing and verifying inventory conditions (Rusch, 2020).

Conclusion

The COVID-19 pandemic has prompted a re-evaluation of physical inventory counting procedures across numerous industries. As companies and auditors continue to adapt to these evolving circumstances, effective communication, alternative audit procedures, and judicious use of technology will be key components in adequately addressing the challenges presented. By maintaining transparency and enacting effective measures, companies can uphold the integrity of their financial reporting, thereby assuring stakeholders of the reliability of their financial statements. Ultimately, the pandemic has underscored the importance of flexibility, innovative thinking, and collaborative strategies in navigating challenging landscapes.

References

1. Collins, J. (2020). Auditing in a Pandemic: Maintaining Audit Quality. Journal of Accountancy.
2. Deloitte. (2020). COVID-19: Considerations for auditors on inventories. Retrieved from https://www2.deloitte.com
3. Ernst & Young. (2020). Managing inventory counts during COVID-19. Retrieved from https://www.ey.com
4. ICAI. (2020). Standard on Auditing: SA 501. Retrieved from https://www.icai.org
5. KPMG. (2020). Accounting and Auditing Update - Issue No. 44/2020. Retrieved from https://home.kpmg/xx/en/home/insights/2020/05/accounting-and-auditing-update.html
6. Mazumdar, S. (2020). Impact of COVID-19 on Inventory Management. Business Insights Journal.
7. McCarthy, M. (2020). Inventory Counts in the Era of COVID-19. Financial Auditor Review.
8. PWC. (2020). Remote auditing amid COVID-19: The impacts on inventory counts. Retrieved from https://www.pwc.com
9. Rusch, W. (2020). Remote auditing during pandemic: Adaptations and strategies. International Journal of Auditing Research.
10. Smith, L. (2021). Dealing with Inventory during COVID-19. Journal of Business Administration.
By evaluating these dynamic variables, businesses can strengthen both their inventory management and auditing processes, thereby enhancing overall operational resilience in the wake of COVID-19 and beyond.