(ii) Substantive procedures for inventory valuation
– Cast a schedule of all raw materials, finished goods and work in progress (WIP) inventory and agree to TB/FS 1
– Obtain breakdown and agree sample of WIP from the count to the WIP schedule, agree percentage completion 1
– For a sample, obtain relevant cost sheets and confirm raw material costs to recent purchase invoices, labour costs to time sheets or wage records and overheads allocated are of a production nature 1
– For a sample of inventory items, review the calculation for equivalent units and associated equivalent unit cost and recalculate the inventory valuation 1
– Select a sample of year-end finished goods and review post year-end sales invoices to ascertain if net realisable value (NRV) is above cost or if an adjustment is required 1
– Select a sample of items included in WIP at the year end and ascertain the final unit cost price, verifying to relevant supporting documentation, and compare to the unit sales price included in sales invoices post year end to assess NRV 1
– Review aged inventory reports, identify slow moving goods, discuss with management 1
– Compound E243, discuss with management plans for disposing of goods, why NRV is $400,000 1
– If any of defective goods have been sold post year end, agree to the sales invoice to assess NRV 1
– Agree the cost of $720,000 for compound E243 to supporting documentation 1
– Confirm the final adjustment for compound E243, discuss with management if adjustment made, if so, follow through the write down to confirm 1
– Review the financial statements disclosures for compliance with IAS 2 Inventories 1
–––
Restricted to 6