How does the auditor test inventory?
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Key procedures:
- Existence: attend physical inventory count, perform test counts
- Completeness: observe that all items are counted, check counting procedures
- Valuation: test cost calculations (FIFO/weighted average), compare to NRV, identify obsolete items
- Rights: review consignment agreements, verify ownership
- Cutoff: test last receipts/shipments before and after year-end
- Presentation: verify proper classification and disclosure
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