On January 2^nd as an audit assistant at a local accounting firm, you are assigned to finish off the workpapers of an inventory audit observation that the accounting firm took part in on December 31^st. The client is a retailer selling clothing, small appliances and other small electronic devices. The Accounting Manager has shared with you detailed schedules of the inventory on hand at December 31st, as well as other information about inventory transactions that have taken place within the last week which support the determination that a good inventory cutoff calculation was done as it relates to goods in transit. You are satisfied with the accuracy of the count and the determination of the balances at December 31^st.

While you are finishing up your inventory workpapers the Accounting Manager shared with you that the company is very careful to evaluate the NRV of its inventory at year-end to determine if any write-downs may be necessary. The company uses the lower-of cost or market method to report the value of its FIFO inventory. You are scheduled to have a final meeting with the senior on the engagement to discuss the inventory audit. You document your conversation with the Accounting Manager in the workpapers and you meet with the Senior on the engagement. What will you discuss with the Senior on the engagement about the inventory valuation?

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Being an audit assistant the things on inventory valuation to be discussed with clients sen... View the full answer