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:

Reviewing the purchase invoices for the items.

Reviewing the sales prices of these items sold subsequent to year-end.

Confirming the quantity with the warehouse manager.

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

Reviewing the sales prices of these items sold subsequent to year-end.

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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