What Should an Auditor Do to Ensure That Inventory Is

question 4

Multiple Choice

What should an auditor do to ensure that inventory is stated at the lower of cost and net realizable value?

• A) Select a sample of inventory purchases made during the year and check the associated invoice to ensure they are not recorded at more than that value
• B) review and test the process used by management, use an independent estimate and review subsequent events
• C) ensure that all inventory items on hand at year-end have been properly recorded at cost when purchased.
• D) ensure that inventory that is not saleable is disclosed separately in the financial report

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Definitions:

Bonds Payable

Long-term liabilities representing money a company must pay back to bondholders by a specified maturity date.

Operating Activities

The primary revenue-generating activities of an organization, as opposed to investing and financing activities.

Financing Activities

Transactions and events where a business raises funds to support its operations or capital expenditures often through borrowing or issuing equity.

Operating Activities

Transactions and others events that are not investing or financing activities that enter into the determination of net income.