When labor is a material part of inventory valuation, auditors should emphasize testing internal controls over proper classification of payroll transactions.

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Labor is a material component of inventory cost, so auditors should verify that payroll transactions are properly classified to ensure accurate inventory valuation. This requires robust internal controls to ensure that payroll transactions are accurately recorded and properly allocated to inventory costs. Therefore, auditors should place greater emphasis on testing internal controls over payroll transactions to ensure the accuracy of inventory valuation.

When Labor Is a Material Part of Inventory Valuation, Auditors