Question

The internal auditor is concerned with the overall valuation of inventory. Rank the following sources of engagement information from most persuasive to least persuasive in addressing the assertion as to the valuation of inventory.1.Calculate inventory turnover by individual product.

2.Assess the net realizability of all inventory items with a turnover ratio of 2.0 or less by interviewing the marketing manager as to the marketability of the product.
3.Calculate the net realizable value (NRV) of all inventory products (using software to calculate NRV based on the last selling price) and compare NRV with cost.
4.Take a statistical sample of inventory and examine the latest purchase documents (invoices and receiving slips) to calculate inventory cost.
1) 1, 2, 3, 4.
2) 1, 4, 2, 3.
3) 4, 1, 3, 2.
4) 2, 3, 4, 1.

Answer 1

The sources of engagement information for valuing inventory are ranked based on their persuasiveness.

Step-by-step explanation:

When ranking the sources of engagement information from most persuasive to least persuasive in addressing the assertion as to the valuation of inventory, it is important to consider the reliability and relevance of each source. Here is the correct ranking:

1. Calculate the net realizable value (NRV) of all inventory products and compare NRV with cost. This method involves using software to calculate NRV based on the last selling price, providing a concrete financial indicator.
2. Take a statistical sample of inventory and examine the latest purchase documents (invoices and receiving slips) to calculate inventory cost. This method provides a more direct assessment of the actual cost of inventory.
3. Assess the net realizability of all inventory items with a turnover ratio of 2.0 or less by interviewing the marketing manager. This method relies on the input of the marketing manager to gauge the marketability of the products.
4. Calculate inventory turnover by individual product. While this method can provide some insights into the valuation of inventory, it is the least persuasive as it does not directly address the assertion regarding the overall valuation of inventory.