- 20 Marks
AAA – May 2024 – L3 – SB – Q2 – Overview of Advanced Audit and Assurance
Discuss audit review types, include necessary IAS 16 and IAS 36 information in the audit checklist, and advise on misclassified asset treatment.
Question
The statement below is an extract of property, plant and equipment from the “notes to the financial statements” of ABC Plc:
| Land and buildings | Plant, equipment, fixtures and fittings, and motor vehicles | Total | |
|---|---|---|---|
| Costs (₦) | |||
| At January 1, 2020 | 75,230,481 | 120,454,850 | 195,685,331 |
| Additions | 12,540,000 | 16,000,500 | 28,540,500 |
| Acquisitions through business combinations | 24,400,000 | 35,750,430 | 60,150,430 |
| Classified as held for sale | (10,200,450) | (15,450,600) | (25,651,050) |
| Disposals | (5,000,465) | (10,700,250) | (15,700,715) |
| At December 31, 2020 | 96,969,566 | 146,054,930 | 243,024,496 |
| Accumulated depreciation and impairment losses | |||
| At January 1, 2020 | 46,660,254 | 66,675,860 | 113,336,114 |
| Depreciation charge for the year | 5,594,523 | 17,220,518 | 22,815,041 |
| Classified as held for sale | (7,650,338) | (9,270,000) | (16,920,338) |
| Disposals | (3,762,523) | (9,034,069) | (12,796,592) |
| Impairment losses | 5,267,533 | 6,022,713 | 11,290,246 |
| Reversal of Impairment losses | (4,515,028) | (4,818,170) | (9,333,198) |
| At December 31, 2020 | 41,594,421 | 66,796,852 | 108,391,273 |
Net carrying amount
At December 31, 2020: ₦55,375,145 (Land and buildings), ₦79,258,078 (Plant, equipment, fixtures, and fittings, and motor vehicles), Total: ₦134,633,223
At December 31, 2019: ₦28,590,212 (Land and buildings), ₦53,778,390 (Plant, equipment, fixtures, and fittings, and motor vehicles), Total: ₦82,368,602
The above was the situation of the statement of financial position of the company when it was signed at the board of directors meeting. During further review to sign off the audit file, it was discovered that the classification of some of the assets as impaired was due to wrong classification and the value had actually increased due to a new road network in the location. This affected the impairment losses for the year. The new value of the buildings affected and shown in the note above as available from market survey had actually grown to ₦8.5 million within the period under review.
Required:
- Evaluate the different types of audit review, the purposes, and the scope of the reviews. (10 Marks)
- Discuss the necessary information to be included in the audit checklist based on the information above in relation to IAS 16 – Property, Plant, and Equipment and IAS 36 – Impairment of Assets. (7 Marks)
- Advise on the treatment of the issue raised with regard to the wrongly classified assets. (3 Marks)
Find Related Questions by Tags, levels, etc.
- Tags: and Equipment, Asset Classification, Audit Review, Financial Reporting, IAS 16, IAS 36, Impairment Reversal, Plant, Property
- Level: Level 3
- Topic: Overview of Advanced Audit and Assurance
- Series: MAY 2024