Auditor focuses on whether valuation follows acceptable accounting principles, including:
(1) Assignment of costs
Must use an acceptable method (e.g., FIFO or average cost) and apply it consistently.
(2) Accounting treatment of problem inventory
Identify and treat properly: obsolete, slow-moving, excess, defective items.
(3) Lower of cost or NRV
- Inventory may need to be reduced to replacement cost or NRV (lower of cost or NRV concept).
- Auditor verifies the basis by observing inventory and making enquiries (management/production/sales).
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