Required: (a) Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to Danube Co's land and buildings. (6 marks) (b) Describe the procedures the auditor should perform in relation to the exceptions noted during the trade receivables circularisation in respect of Nile Co and Congo Co. Note:The marks will be split equally between each customer. (4 marks) (c) Describe substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to the PROVISION and the RECEIVABLE arising from the sale of defective goods.
解析：
September/December 2021 S3改写答案
(a)Land and buildings
– Obtain a schedule of all land and buildings, cast and agree to the trial balance and financial statements.
– Consider the competence and capability of the valuer, by assessing through enquiry their qualification, membership of a professional body and experience in valuing these types of assets.
– Review the assumptions and method adopted by the valuer in undertaking the revaluation to confirm the reasonableness and compliance with principles of IAS 16.
– Agree the schedule of revalued land and buildings to the valuation statement provided by the valuer and to the non-current assets register.
– Agree all land and buildings on the non-current assets register to the valuation report to ensure completeness of the land and buildings valued to ensure all assets in the same category have been revalued in line with IAS 16.
– Recalculate the total revaluation adjustment and agree correctly recorded in the revaluation surplus.
– Recalculate the depreciation charge for the year and confirm that for assets revalued at July 20X4, the depreciation was based on cost before the revaluation and based on the valuation after on a pro rata basis.
– For a sample of land and buildings from the non-current assets register, physically verify to confirm existence.
– For a sample of land and buildings trace back to the non-current assets register and general ledger to confirm completeness.
– Review the financial statements disclosures relating to land and buildings to ensure they comply with IAS 16.
(b) Exceptions in the trade receivables circularisation
Nile Co
– For the non-response from Nile Co, with the client’s permission, the team should arrange to send a follow-up confirmation request.
– If Nile Co does not respond to the follow up, then with the client’s permission, the auditor should telephone the customer and ask whether they are able to respond in writing to the confirmation request.
– If there is still no response, then the auditor should undertake alternative procedures to confirm the balance owing from Nile Co. These would include detailed testing of the balance by a review of after date cash receipts and agreeing to sales invoices and goods dispatched notes (GDN).
Congo Co
– For the response from Congo Co the auditor should investigate the difference of $14,132, and identify whether this relates to timing differences or whether there are possible errors in the records of Danube Co.
– If the difference is due to timing, such as cash in transit, details of the difference should be agreed to post year-end cash receipts in the cash book.
– If the difference relates to goods in transit, then details should be agreed to a pre year-end GDN.
– The receivables ledger should be reviewed to identify any possible mis-postings as this could be a reason for the difference with Congo Co.
(c) Provision and receivable arising from the sale of defective goods
– Review the correspondence with Kalama Kids Co and establish the details of the claim to assess whether a present obligation as a result of a past event has occurred.
– Review correspondence with Thames Co, the supplier of the hoverboards, to assess whether they accept liability for the defect.
– Review correspondence with Danube Co’s legal advisers or, with the client’s permission, contact the legal advisers to obtain their view as to the probability of either the legal claim from the customer and the request for reimbursement from the supplier being successful as well as any likely amounts to be paid or received.
– Discuss with management/enquire of the legal adviser as to whether any other customers of Danube Co have experienced problems with sales of hoverboards and therefore the likelihood of any potential future claims.
– Review board minutes to establish whether the directors believe that either claim will be successful or not.
– Review the post year-end cash book to assess whether any payments have been made to the customer or cash received from the supplier and compare with the amounts recognised in the financial statements.
– Discuss with management why they have included a receivable for the claim against the supplier as this is possibly a contingent asset and should only be recognised as an asset if the receipt of cash is virtually certain. Consider the reasonableness of the proposed treatment.
– Obtain a written representation confirming management’s view that the lawsuit by Kalama Kids Co is likely to be successful and the claim against Thames Co is virtually certain and hence a provision and a receivable are required to be included.
– Review the adequacy of the disclosures of the lawsuit and supplier claim in the draft financial statements to ensure they are in accordance with IAS 37.
