Answer the following questions:

1. Why does an auditor test for NRV?

2. Find the details of the inventory items selected for NRV testing. What is a key item? Explain how the auditor has decided whether or not the inventory items should be shown at NRV or cost.

3. Are any inventory items to be written down to NRV in this example? If so, by how much?

The following is a copy of the auditor's working paper for auditing inventory balances for the client Zack's Electrical Supply. It shows the details of the net realizable value (NRV) tests. Comments Client: Zack's Electrical Supply Bell & Bowerman, LLP Prepared by: R.EJ. Date: 2/8/23 Period-end: 12/31/22 Reference F07 Reviewed by: LEW. Date: 2/16/23 F07 - NET REALIZABLE VALUE TESTING [A] [B] [B/A=C] [D] [E] [D-E-C Quantity Total Sample Item in Inventory Unit Selling Price Distribution Allowance Amount Number Code Description Category Inventory Value Price TM/Ref per Unit Costs? TM/Ref Variance Needed? ($000) Key item 700025 switches Purchased goods 2.000 $10,000 $ 5 SL $ 33 1 $ 27 No etc... Representative sample 1 701442 routers Purchased goods 25,000 $13,500,000 $540 SL $420 1 $(121) Yes $(3,250) 3 800245 fuses Purchased goods 440 7,000 16 SL 28 1 11 No 800347 covers Purchased goods 288 4,200 15 SL 45 1 29 No 5 etc... Key to audit tick marks: Agrees to supporting documentation of sales invoices posted after year-end. Comments: None (no error detected, exception noted was correctly provided for by the company). 4