The auditor may test a manufacturing client's cost system to substantiate the valuation of inventory.

Question

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The auditor may test the manufacturing client's cost system to determine that the inventory shown on the balance sheet is properly valued. This is because inventory is one of the major financial statement items for manufacturing companies, and it affects both the balance sheet and income statement. The auditor's objective is to ensure that the inventory is valued correctly, so that it does not result in material misstatements in the financial statements.

The Auditor May Test a Manufacturing Client's Cost System to Substantiate