One of our office client throws all the scrap of metal stocks in a separate place in a corner of their Factory. The area which the Scrap occupies is around 1/4 of an Acre. They had just bunched.
The question is while verifying these items, we are unable to measure and we have taken an Approximate figure only. Whether this is correct?
Or is there any other way to calculate the Scrap .
Materiality is one of the most important factor while conducting audit.
If the amount is not material i.e. it is not so affecting your financial results; then go ahead.
Still; take manufacturing process chart from the management and ask the scrap ratio and value for which it is sold. This you can also verify from the past records when the scrap was sold. Also see the present market value of scrap.
See the standard costs established by the firm; if any.
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