Auditors must verify that the physical counts or perpetual record quantities are correctly priced and compiled. Inventory price tests include all the tests of the client’s unit prices to determine whether they are correct.
Pricing purchased inventory – the primary types of inventory included in this category are raw materials, purchased parts and supplies. The auditor must determine whether the client uses LIFO, FIFO, weighted average or some other method.
Pricing manufactured inventory – in pricing work-in-progress and finished goods, the auditor must consider the cost of raw materials, direct labor and manufacturing overhead.
In pricing inventory, auditors must consider whether replacement cost or net realizable value is lower than historical cost.