Dear All
Can someone tell me that how to measure the fair value of unquoted equity investment as per IAS-39 or can we take break up value as fair value. please do let me know at your earliest.

Normally one would not use break up value, sine that would imply the investment will be sold within a short period. IAS 29 includes a lot of guidance in AG 68 – AG 82. This can basically be broken down in three parts:

1.                   fair value can be derived from markets (stock exchange etc) when quoted,

2.                   fair value can be calculated based on recent transaction prices in similar situations,

3.                   fair vale can be calculated based on several models and weighing factors.


It is clear that the last calculation of the fair value is the most risky one, that needs to be done by an expert when the investment is significant in terms of the financial position of the owning company. So be careful when applying fair value to such an investment or even netter when possible try to avoid having to go to fair value, you may keep it on equity value or even cost. But is is also possible that you can find a ration in the documentation that was used when the investment was purchased in the first place.

One thing is sure, do not do this all by yourselve…..



In the real world, it is not necessary that all required information for using the various models will be available on a yearly basis and in practice, many companies who have unquoted vanilla type equity investments use the latest available audited financial statements and if that too is not available make a disclosure to that effect with their reasons for assuming that that subsequent measurements of the unquoted equity investment are stated at fair value. Impairment is considered if there is reasonable evidence to demonstrate the same.

Dear all,

I have a querry regarding auditing…What if the appointment of auditors is made subsequent to the year end (and also physical stock count) say after 3 years and inventory is significant. What will be reporting issues for the auditors in this case??? consider the following example:
  • the appointment of auditors is made in 2007 for the audit of year 2004. The audit working started in 2007 onwards. What are the options available (alternate audit procedures) for the auditor to verify closing inventory? and what are implications on auditors’ report?


asslumalkum every one

Can some tell me about material whare i started IFRS reporting material



Hi Sami
Following is the extract from ISA 501, i hope that it will solve ur problem.
Part A: Attendance at physical inventory counting
4. Management ordinarily establishes procedures under which inventory is physically counted at least once a year to serve as a basis for the preparation of the financial statements or to ascertain the reliability of the perpetual inventory system.
5. When inventory is material to the financial statements, the auditor should obtain sufficient appropriate audit evidence regarding its existence and condition by attendance at physical inventory counting unless impracticable. The auditor’s attendance serves as a test of controls or substantive procedure over inventory depending on the auditor’s risk assessment and planned approach. Such attendance enables the auditor to inspect the inventory, to observe compliance with the operation of management’s procedures for recording and controlling the results of the count and to provide audit evidence as to the reliability of management’s procedures.
6. If unable to attend the physical inventory count on the date planned due to unforeseen circumstances, the auditor should take or observe some physical counts on an alternative date and, when necessary, perform audit procedures on intervening transactions.
7. Where attendance is impracticable, due to factors such as the nature and location of the inventory, the auditor should consider whether alternative procedures provide sufficient appropriate audit evidence of existence and condition to conclude that the auditor need not make reference to a scope limitation. For example, documentation of the subsequent sale of specific inventory items acquired or purchased prior to the physical inventory count may provide sufficient appropriate audit evidence.
8. In planning attendance at the physical inventory count or the alternative procedures, the auditor considers the following:
· The risks of material misstatement related to inventory.
· The nature of the internal control related to inventory.
· Whether adequate procedures are expected to be established and proper instructions issued for physical inventory counting.
· The timing of the count.
· The locations at which inventory is held.
· Whether an expert’s assistance is needed.
9. When the quantities are to be determined by a physical inventory count and the auditor attends such a count, or when the entity operates a perpetual system and the auditor attends a count one or more times during the year, the auditor would ordinarily observe count procedures and perform test counts.
10. If the entity uses procedures to estimate the physical quantity, such as estimating a coal pile, the auditor would need to be satisfied regarding the reasonableness of those procedures.
11. When inventory is situated in several locations, the auditor would consider at which locations attendance is appropriate, taking into account the materiality of the inventory and the risk of material misstatement at different locations.
12. The auditor would review management’s instructions regarding:
(a) The application of control activities, for example, collection of used stocksheets, accounting for unused stocksheets and count and re-count procedures;
(b) Accurate identification of the stage of completion of work in progress, of slow moving, obsolete or damaged items and of inventory owned by a third party, for example, on consignment; and
(c) Whether appropriate arrangements are made regarding the movement of inventory between areas and the shipping and receipt of inventory before and after the cutoff date.
13. To obtain audit evidence that management’s control activities are adequately implemented, the auditor would observe employees’ procedures and perform test counts. When performing test counts, the auditor performs procedures over both the completeness and the accuracy of the count records by tracing items selected from those records to the physical inventory and items selected from the physical inventory to the count records. The auditor considers the extent to which copies of such count records need to be retained for subsequent audit procedures and comparison.
14. The auditor also considers cutoff procedures including details of the movement of inventory just prior to, during and after the count so that the accounting for such movements can be checked at a later date.
15. For practical reasons, the physical inventory count may be conducted at a date other than period end. This will ordinarily be adequate for audit purposes only when the entity has designed and implemented controls over changes in inventory. The auditor would determine whether, through the performance of appropriate audit procedures, changes in inventory between the count date and period end are correctly recorded.
16. When the entity operates a perpetual inventory system which is used to determine the period end balance, the auditor would evaluate whether, through the performance of additional procedures, the reasons for any significant differences between the physical count and the perpetual inventory records are understood and the records are properly adjusted.
17. The auditor performs audit procedures over the final inventory listing to determine whether it accurately reflects actual inventory counts.
18. When inventory is under the custody and control of a third party, the auditor would ordinarily obtain direct confirmation from the third party as to the quantities and condition of inventory held on behalf of the entity. Depending on materiality of this inventory the auditor would also consider the following:
· The integrity and independence of the third party.
· Observing, or arranging for another auditor to observe, the physical inventory count.
· Obtaining another auditor’s report on the adequacy of the third party’s internal control for ensuring that inventory is correctly counted and adequately safeguarded.
· Inspecting documentation regarding inventory held by third parties, for example, warehouse receipts, or obtaining confirmation from other parties when such inventory has been pledged as collateral.


Hi Sami,

That depends on the type of the inventory. The auditor should assess if it is possible to obtain adequate assurance on the inventory at the related balance sheet date through using other audit procedures. Actually, only other audit procedure is to perform roll-back from the most recent stock take to the date at which the assurance on stock is needed. Namely, the briding of stocks (all debits and credits) should be made between 31.12.2007 to 31.12.2004 and then the auditor should audit the transactions. This is the way it should be in theory but my experience shows that this is rather impracticable most of the times, but it is not impossible. Again, the type of the stock is important…if we are talking about cars, the roll back is quite simple…if we are talking about taxtie production, it is almost impossible… 

If it is not possible to obtain reasonable assurance on the existence of the stock, then a technical qualification should be included in the auditor’s report.
Hope it helps…please feel free if you need further clarification…