AUD, Auditing and Attestation

Sources for Matters Requiring Special Consideration

Last reviewed 2026-09-14

The standards and authorities behind PocketCPA's AUD lessons on Matters Requiring Special Consideration. The topic rests on AU-C 501.

About this topic

Some balances and events need more than the ordinary run of audit procedures. This topic collects the ones that do, and each of them carries a signature procedure worth memorizing.

They are appended as their own sections after the reference panel.

Key points

• Inventory observation is required; the auditor performs or observes test counts and evaluates the client's count procedures.
• Litigation and claims require inquiry of management and direct communication with the entity's legal counsel.
• Accounting estimates require the auditor to evaluate reasonableness and test for management bias.
• Fair value measurements must be evaluated for the appropriateness of the model, inputs, and assumptions used.

What the lessons cover

1. Inventory
2. Litigation, claims, and assessments
3. Estimates, related parties, and service organizations (AU-C 540, 550, 402)
4. Investments carried on the investee's results
5. Going concern (AU-C 570)
6. Opening balances in an initial audit or a reaudit (AU-C 510)
7. Subsequent events as evidence about the balance sheet date (AU-C 560)
8. Referring to a component auditor (AU-C 600)
9. AU-C against the PCAOB standards, side by side

Authoritative references

Where these requirements sit in the literature. Each entry names the paragraph, then breaks it out provision by provision.

• AU-C 510 governs opening balances in an initial audit engagement, including a reaudit: whether the opening balances contain misstatements that materially affect the current period, and whether the prior period's accounting policies were consistently applied.
• AU-C 570 governs the auditor's consideration of an entity's ability to continue as a going concern, obtaining evidence about and concluding on whether substantial doubt exists.
• AU-C 501 governs specific audit-evidence considerations for selected items, inventory among them: when inventory is material, attend the physical count and perform procedures over the final records.
• AU-C 501.12b, .13, .14, .15, .16 and .25 carry the tested mechanics of that section.
  • Paragraph .12b requires audit procedures over the entity's final inventory records to determine whether they reflect the actual count results.
  • Paragraph .13 covers counting at a date other than the date of the financial statements, adding procedures over intervening transactions on top of those required by .12.
  • Paragraph .14 covers inability to attend because of unforeseen circumstances, where the auditor makes or observes counts on an alternative date.
  • Paragraph .15 covers attendance that is impracticable, where the auditor performs alternative audit procedures instead.
  • Paragraph .16 covers inventory in the custody and control of a third party, reached by confirmation of quantities and condition, by inspection, or by other procedures appropriate in the circumstances.
  • Paragraph .25 makes counsel's refusal to respond appropriately, or management's refusal to permit the communication, a scope limitation calling for a qualified opinion or a disclaimer when no alternative procedure suffices.
• Two notes on the numbering, both settled against primary AU-C text on 2026-08-12.
  • The core material-inventory attendance requirement is AU-C 501.12, and AU-C 501 has no paragraphs .07 through .11. SAS 142 withdrew them, so numbers in that range are not competing alternatives, they are wrong.
  • .14 and .15 are not interchangeable: unforeseen circumstances buy a count on another date, impracticability buys alternative procedures.
• AU-C 600A governs a material equity-method investment. AU-C 501.05 expressly excludes the equity method, and AU-C 501.A5 sends the subject to 600A, which treats the investee as a component. The requirement is to obtain sufficient appropriate audit evidence about the investee's financial results, ordinarily by reading the investee's financial statements and the audit report on them. The reason is that the carrying amount is driven by the investor's share of those results.
• AU-C 510.08 and .12 carry the opening balance requirements and their reporting consequence.
  • Paragraph .08 requires evidence that prior-period closing balances were correctly carried forward, that the opening balances reflect appropriate accounting policies, and then one of three routes: reviewing the predecessor's audit documentation, evaluating current-period procedures that bear on the opening balances, or performing specific procedures over them.
  • Paragraph .12 makes an inability to obtain that evidence a scope limitation, answered with a qualified opinion or a disclaimer and never with an emphasis-of-matter paragraph.
• AU-C 540.14 and .18 split the estimates work.
  • Paragraph .14 makes the retrospective review of prior-period outcomes a risk assessment procedure aimed at the effectiveness of management's estimation process and at indicators of bias, expressly not at prior-period judgments that were appropriate when made.
  • Paragraph .18 carries the responses to assessed risk: evidence from events up to the date of the auditor's report, testing how management made the estimate, and developing an auditor's point estimate or range.
• AU-C 570.11, .10, .16 and .24 carry going concern end to end.
  • Paragraph .11 defines the reasonable period of time by reference to the applicable framework, which under US GAAP means ASC 205-40's window of one year after the date the statements are issued or available to be issued.
  • Paragraph .10 states the objectives: obtain evidence about and conclude on whether substantial doubt exists, and evaluate the adequacy of the related disclosures and the resulting reporting implications.
  • Paragraph .16 requires the auditor to evaluate whether it is probable that management's plans can be effectively implemented and will mitigate the conditions, with evidence about the significant assumptions underlying them.
  • Paragraph .24 requires an unmodified opinion plus a separate section headed "Substantial Doubt About the Entity's Ability to Continue as a Going Concern" when the disclosures are adequate.
• Paragraph .06 of AU-C 570 is a different matter and a favorite distractor: it lists the factors relevant to management's own evaluation, not the auditor's objectives.
• AS 2510.09 through .15 carry the PCAOB inventory requirements.
  • Presence at the count when quantities rest solely on a physical count.
  • Observation during or after the period where perpetual records are well kept and periodically verified.
  • The conditions attached to a client's own statistical sampling.
  • The rule that tests of the accounting records alone will never be sufficient as to quantities.
  • The treatment of prior inventories the auditor did not observe.
  • The public-warehouse procedures.
  • Paragraph .15 points the reporting consequences to AS 3105.07 and AS 3105.51.
• AS 2505.05 through .14 carry the PCAOB litigation requirements.
  • Management as the primary source, and the four required procedures.
  • The request that management send the inquiry letter.
  • The letter as the primary means of corroboration, with inside counsel no substitute for what outside counsel withholds.
  • The contents of the letter.
  • The appropriate limitations that are not scope limitations.
  • The refusal that is one.
  • The lawyer who cannot evaluate an inherently uncertain outcome.
• AS 2501.07 and AS 2401.64 together locate the issuer estimates work. AS 2501.07 gives the three approaches, and AS 2401.64 puts the retrospective review in the fraud standard, limited to estimates carrying an assessed fraud risk. AS 2810.13 supplies the measurement rule: where a supported range exists and the recorded estimate falls outside it, the misstatement is the difference from the closest reasonable estimate. AS 2810.27 adds the bias test that reads on swings between the ends of the range across years.
• AS 2410.12, .15, .18 and .19 are the related-party paragraphs most often contrasted with AU-C 550.
  • The five-part procedure for each disclosed or significant-risk transaction.
  • The requirement that follow-up on an indication of an undisclosed related party extend beyond inquiry of management.
  • The qualified or adverse opinion when an arm's-length assertion cannot be substantiated and management will not modify the disclosure.
  • The required communication to the audit committee.
• AS 2415.02, .12 and .14 are the going-concern paragraphs that differ from AU-C 570.
  • The horizon of one year beyond the date of the financial statements being audited.
  • The explanatory paragraph with an appropriate title immediately following the opinion paragraph.
  • Inadequate disclosure treated as a GAAP departure leading to a qualified or adverse opinion.
• AS 2610.03 through .20 carry the predecessor and successor communications.
  • No acceptance until the required communications are evaluated.
  • The initiative resting with the successor.
  • The client's permission.
  • The specific inquiries.
  • The predecessor's duty to respond promptly and fully, or to state that the response is limited.
  • Access to working papers at the predecessor's judgment.
  • The reaudit rules, including the inventory work at a subsequent date.
• AS 2601.10, .12, .21 and .22 carry the user auditor's use of a service auditor's report.
  • The scope-limitation fork when evidence cannot be obtained.
  • The operating-effectiveness limit on a report on controls placed in operation.
  • The prohibition on referring to the service auditor in the audit report.
  • The service auditor's independence from the service organization but not from each user.
• AS 2801.03 through .12 carry the PCAOB subsequent-events framework: the adjusting type, the disclose-only type, the worked examples that separate them, and the procedures performed at or near the date of the auditor's report.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.

See also

• Sources for every AUD topic
• Free AUD sample questions
• The CPA exam glossary