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I had an interview question where I was asked about the following by the partner of the firm,
That we have an audit client who was using the fair value model for investment property , and due to covid , property and rent prices have fallen significantly, and so if they were to do fair value valuation at the reporting date , the LOSSES from fair value valuation could significantly impact the profits of the company and their clients is asking the auditor advice if they could change the policy to the cost model of investment property valuation, as the clients feel this would this would be a more consistent basis for valuation.
({coz later on down the years after covid, property value could increase and also then the profits later on increase significantly})
and so the partner asked me what advice I would’ve to the client ?
can you please clarify how exacty am I suppose to answer this question ?
what are the points I should be raising ?
– a)shall I say that I as auditor shouldn’t be giving advice to the client as this later on could lead to self review threat and could effect my independence ? Or can the auditors give an advice ?– b) but if I were to give an advice supposedly, what advice should I give ? can I tell the client he has a choice to switch to cost model if he feels that is more appropriate , is this answer okay ?
or is the partner testing my knowledge on impairment , that even under cost model , impairment would be done as covid is an external factor of impairment , and so inform the client that even under the cost model , the losses from impairment would still impact the profits of the company.How exactly am I suppose to reply to the partner ?
If you’ve had it already, I would have thought you should have answered already. In any case, this isn’t our area of expertise – you would be better asking a careers advisor. But I’ll comment anyway …
a) advice isn’t going to affect objectivity if it is to comply with IFRS – it would only be if at a later date the auditor disagrees with the accounting treatment that there will be conflict.
b) You need to be “all over” IAS 40 https://www.ifrs.org/issued-standards/list-of-standards/ias-40-investment-property (you will need to sign in, but it can be downloaded for free). There are no grounds for reverting from FV model to cost model.
If the partner wants an answer that you would be “compliant” to the client’s wishes and you answer otherwise, you should rejoice at not being offered the job – it would be a lucky escape.
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