Inventory Valuation and Ownership
Testing Valuation and Rights
Beyond verifying existence, auditors evaluate whether inventory is properly valued and whether the client has legal ownership of the goods.
- Review obsolete or damaged inventory.
- Compare recorded costs with purchase invoices.
- Evaluate lower of cost or net realizable value when applicable.
- Inspect consignment arrangements.
Note
Inventory held on consignment generally should not be included as the client's inventory unless ownership has transferred.
Summary
Proper valuation and ownership testing ensures inventory is neither overstated nor improperly recorded.