ExpertMedium1 markMultiple Choice
CPA · Question 63 · Area III: Performing Procedures
An auditor is testing the valuation of inventory. The auditor notes that the client has a large quantity of 'slow-moving' electronic components. The client has not written them down. Which of the following procedures provides the BEST evidence of the net realizable value of these items?
An auditor is testing the valuation of inventory. The auditor notes that the client has a large quantity of 'slow-moving' electronic components. The client has not written them down. Which of the following procedures provides the BEST evidence of the net realizable value of these items?
Answer options:
A.
Reviewing the purchase invoices for the items.
B.
Reviewing the sales prices of these items sold subsequent to year-end.
C.
Confirming the quantity with the warehouse manager.
D.
Recalculating the inventory turnover ratio.
How to approach this question
Valuation (NRV) = Selling Price. Look at subsequent sales.
Full Answer
B.Reviewing the sales prices of these items sold subsequent to year-end.✓ Correct
To test Net Realizable Value (valuation) of slow-moving inventory, the auditor should look at actual sales of the inventory after year-end. This provides objective evidence of the market value.
Common mistakes
Confusing Cost (Purchase Invoice) with Value (Sales Invoice).
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