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I am finding it difficult to think of substantive procedures on valuation of inventory.
What should I do
If you do not have any experience as an auditor it helps to imagine that you are one. For example, go into a department store or anywhere that has public access where there is inventory …
Imagine that at this point in time it is valued at $x amount – look around you – how, as auditor can you verify that amount?
The valuation is a function of quantity and value – quantity is relatively easy – count it! Test count book to actual and actual to book.
Value per IAS 2 is the lower of cost and NRV – for cost, see purchase invoices, for NRV see after-date sales invoices.
How else might inventory be misstated? Don’t forget cut-off – this is clearly explained in the notes as I have referenced in an earlier post.
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