Inshalla Retail Company keeps its inventory on a perpetual FIFO basis for internal reporting, but adjusts the year-end FIFO balance to a LIFO basis using a dollar-value LIFO index. The auditor is satisfied that the FIFO perpetual inventory is accurate. The LIFO adjustment is made by calculating an index for each of the company’s four product lines. The index is applied to determine whether there was an increase or decrease in inventory for the year, and the appropriate entry is made.

Required:

Explain how the auditor would audit the LIFO adjustment.