The auditors plan to perform a test of inventory pricing to verify that the client has correctly deter mined the lower -of -cost -or -market value of the inventory.
a. What assertion are the auditors testing?
b. Prepare a sampling plan to perform the test. The desired level of assurance is 90% (10% risk of incorrect acceptance). The ratio of estimated misstatement to tolerable misstatement is 0.05. The auditor uses 75% of materiality as the tolerable misstatement. The materiality level is $400,000, and the population is $4,800,000.
c. How will you select your sample? Do you have choices of the method to use to select the sample? Explain your answer.
d. Explain how you will evaluate the results of your sample. State clearly the possible conclusions from your tests.
e. If you reject the lower -of -price -or -market value of the inventory based on your test, what will you do?