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hi, There was a question in dec 2012 regarding completion of an audit and in note one there was disposal of an asset bt when sale documents reviewd there was an option to repurchase the property in 5 yrs time.
The question required to indicate the risk of material mistatment and consider the adequacy of evidence.This is a question of substance over form. How likely is the repurchase? Are substantially the whole of the risks and rewards of ownership been transferred from the company to the buyer?
Is this, in commercial reality terms, a sale or is it a secured loan?
What is the asset and what type of company has bought this asset?
In the (free) course notes there is an example of a bank “buying” one million gallons / litres of whisky. Is this a sale or is it a loan?
I suggest your line of thought should start somewhere near the above suggestions
Ok?
but the risk and reward has been transfered ,there is jst an option attached .there is no compulsion .still its not sale?
Surely the auditor needs to do additional work to determine the precise nature of the agreement. If it’s likely that the property will be repurchased then there needs to be a re-assessment as to the correctness of the treatment. Will that not answer the question?
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