Part (e) for 10 marks had two sub requirements, part (i) required a definition of net realisable value (NRV) and part (ii) four procedures to ensure NRV of inventory is above cost.

It was pleasing to see that a significant proportion of candidates could clearly provide the definition of NRV from IAS 2 Inventories. However there were a large number of candidates who did not understand what NRV was.

Common errors included:

• Confusing NRV with net book value and stating that NRV was cost less depreciation 
• Giving the IAS 2 definition of how inventory should be valued i.e. lower of cost and NRV but not actually answering the question asked of what NRV was 
• Stating that NRV was market value of goods less the costs of sale, this is the definition of gross profit and not NRV.

It is unsatisfactory that candidates cannot use their accounting knowledge gained in F3 Financial Accounting and apply it to an audit question. This is assumed knowledge for F8 and candidates must be prepared to apply this in an audit question where required.

The second part of this question was not answered well. Perhaps due to the misunderstandings over what NRV involved, many candidates could not provide any relevant procedures let alone the four required by the question.

In addition although the question clearly stated that cost has already been determined satisfactorily a significant proportion of answers contained procedures to verify the cost of inventory. Again, candidates must read the question clearly, as it was obvious that standard lists of inventory tests had been learnt and so were written in their answers even though many were irrelevant.

Some of those candidates who did attempt to provide relevant NRV procedures unfortunately did not give sufficient detail in their answers to receive the 2 marks available per procedure, and many tests were too vague such as ‘check the sales prices’. Candidates must be able to provide detailed audit procedures in order to be successful in this paper.