ACCA AA Syllabus D. Audit Evidence - Inventory - Valuation - Notes ^{9 / 18}

NRV = Net realisable value

This is basically selling price less cost to sell it. This is normally higher than cost

Sometimes it is not because it is obsolete or in poor condition

This can be checked at the inventory count

Raw Materials / Goods for resale Cost

1. Cost to be Included:

   • Actual cost of the items (plus delivery)

2. Audit Tests

   • Confirm which Inventory method used (FIFO, AVCO etc)

   • Check figures to purchase inventories

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Cost of Manufactured goods and WIP

1. Here you need the different elements of cost:

   direct materials
   direct labour and 
   production overheads

2. Audit Tests

   • Get breakdown
     of costs of finished and WIP goods

   • Calculations
     Check and recalculate

   • Materials
     check fifo etc and to purchase invoice

   • Labour
     Check pay rates against payroll records

     Check hours worked with time records

   • Production overheads
     Ensure only production overheads (not selling or admin)

     Ensure overhead absorption rates are based on normal levels of output

   • Work in Progress
     Check the stage of completion, for both materials, labour and overheads

Net Realisable Value

1. Audit Tests

   • Review Procedures
     for comparing cost to NRV

   • Follow up

     Evidence from:
     1) Inventory count
     2) Lots of returns
     3) Price reductions given to customers

   • Check
     for slow-moving items

   • Review prices
     after year end

   • Ensure
     estimated costs to complete are accurate