For audit of year-end 2010 audit, auditors should form an expectations that inventory level has reduced, as compared to previous year. Inventory level can be computed as inventory as % of sales / inventory as % of last 3 month sales. This provide a good guide / benchmark on the inventory level our audit clients are holding.
In view of the recovering business/ economy, inventory turnover are expected to become relatively quicker than prior year. Aged inventory are expected become relatively lesser either.
If the inventory level, as well as aged inventory level, remain relatively constatnt as prior year, this could indicate higher risk of provision for inventory obsolescence. Auditor should discuss this issue with management.