What should an auditor do to ensure that inventory is stated at the lower of cost and net realizable value?
A) Select a sample of inventory purchases made during the year and check the associated invoice to ensure they are not recorded at more than that value
B) review and test the process used by management, use an independent estimate and review subsequent events
C) ensure that all inventory items on hand at year-end have been properly recorded at cost when purchased.
D) ensure that inventory that is not saleable is disclosed separately in the financial report

Question

Quizplus · Accepted Answer

To ensure that inventory is stated at the lower of cost and net realizable value, the auditor should review and test the process used by management to estimate the value of inventory, use an independent estimate to verify the valuation, and review subsequent events. This approach would provide a more comprehensive assessment of the lower of cost and net realizable value of inventory. Selecting a sample of inventory purchases (choice A) or ensuring that all inventory items on hand are properly recorded at cost (choice C) does not necessarily ensure that inventory is stated at the lower of cost and net realizable value. Disclosing unsaleable inventory separately (choice D) is an important disclosure but does not directly relate to the valuation of inventory at the lower of cost and net realizable value.

What Should an Auditor Do to Ensure That Inventory Is