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CS Professional · Internal and Forensic Audit · Internal Audit of Specific Functions

At Narmada Steels Ltd, the internal auditor observes that slow-moving and obsolete items are carried in the stores at original cost, with no periodic review. Which recommendation is most appropriate?

The auditor should recommend periodic ageing analysis with a policy for provisioning or disposal of slow-moving and obsolete stock. This identifies idle items, supports write-down to net realisable value and avoids overstated assets and unnecessary holding costs.

  1. AIntroduce periodic ageing analysis and a policy for provisioning or disposal of slow-moving and obsolete stockCorrect
  2. BStop recording issues of such items
  3. CTransfer the items to the finance department
  4. DRevalue them at expected replacement cost upward

Explanation

Ageing analysis identifies items not moving, so management can write down to net realisable value where needed or dispose of them. This also reduces carrying costs and overstatement of assets. Ignoring issues or upward revaluation worsens reliability, and transferring items to finance solves nothing.

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