What are the main audit steps in performing an inventory price test?
The inventory balance on the company's financial statements is a function of the quantity of inventory on hand and the value of the inventory. While the inventory observation tests the quantity, price testing tests the cost of the inventory. Generally accepted accounting standards require that inventory is held in the financial statements at the lower of cost or market price. Price testing is the verification of the cost that the company paid for the materials, labor and overhead that goes into the production of inventory.
To perform price testing
1) Firstly, the assigned auditor selects randomly selects items from the company's inventory and verifies them.
2) Verification is done through the analysis of original documents such as invoices, receipts and time cards.
3) It is ensured that the inventory cost is carried in the company's financial statements accurately.
What are the main audit steps in performing an inventory price test?
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