Valuation of InventoryValuation of Inventory

Valuation of Inventory

30 The auditor shall evaluate the methods used by management in the valuation of inventory.

31 The auditor shall perform audit procedures designed to obtain sufficient appropriate audit evidence regarding the valuation of inventory.

32 Such procedures may include the following:

• testing the inventory sheets or continuous inventory records with relevant documents such as invoices, cost records and other sources, to ascertain cost;
• testing standard costing records, where applicable, and testing the treatment of overhead expenses;
• testing for the lower of cost and net realisable value;
• testing the arithmetical accuracy of calculations;
• testing the consistency, in principle and in detail, with which the amounts have been computed;
• evaluating audit evidence supporting the assessment of net realisable value, with particular reference to slow moving, obsolete or damaged inventory;
• consideration of the gross profit ratio disclosed in the financial report and its comparison with the ratio shown in previous reporting periods;
• consideration of the rate of turnover of inventory and its comparison with previous reporting periods; and
• where applicable, consideration of the variances shown by the standard costing records and their treatment in the financial report.