The principle of lower of cost or market and the potential obsolescence of inventory are a concern for the audit team because of which of the following?
A) They are uncommon and may not exist.
B) They are a burden to the auditor in the undue amount of work caused.
C) They are likely to occur in the last month of the year and cause cutoff problems.
D) They are an inherent component of complexity related to valuation.

Question

Quizplus · Accepted Answer

The principle of lower of cost or market requires the auditor to assess whether the inventory is stated at the lower of its cost or market value, which can be a complex valuation issue. Additionally, the potential obsolescence of inventory is a risk of inventory valuation and requires the auditor to assess the appropriateness of the inventory reserve. Therefore, the potential obsolescence of inventory and the application of lower of cost or market are inherent components of complexity related to inventory valuation.

The Principle of Lower of Cost or Market and the Potential