Valuation - detailed audit of stock, Auditing

Valuation - Detailed Audit of Stock

IAS 2 prescribes such stock be priced at the lower of price and net realizable price, It is up to the auditor to ensure that net realizable price is properly assessed and such the select among the cost and total realizable price is properly done and is in accordance along with IAS 2. IAS 2 states such comparisons must be through individual units of stocks or features. Comparison cannot be properly on a basis of the total price of all stocks and the total realizable price. Stocks is reduced to lower of price and net realizable cost through a provision for obsolete, damaged stocks and slow moving. This is a potential region of disagreement among the auditor and the management since it is subject to judgment. The auditor's relates is to ensure about the provision is neither excessive nor inadequate. To determine this adequacy, the auditor is guided through such factors such as the concerning of:

i. The age of the stock;

ii. Its turnover;

iii. Its condition;

iv. Technological progress in the industry concerned;

v. The nature of the stock, it would be perishable or it would be subject to a volatile market;

vi. Economic conditions present selling prices, insisting for the product, the performance of competing products;

vii. The quantity of the stocks held;

viii. The accounting policies included;

ix. Subsequent events

All these factors provide the auditor a good indication of where the provision is adequate or not.

Total realizable value based on selling prices relates to the selling prices prevailing at the balance sheet date. Occasionally we review the selling prices after the balance sheet date but the purpose of this is to obtain additional information about conditions existing at the balance sheet date. Temporary fluctuations must be avoided. Through temporary we mean variations of less than one month.

Posted Date: 1/25/2013 3:04:02 AM | Location : United States

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