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Hi,
I was doing the questions from past papers of p7.
I want to know whether my answer is right ?
As I checked the answer from bpp kit, barely 2/ 3 of my audit procedures matched with bpps answer.
So kindly tell me whether I stated the correct audit procedures?
Question scenario:
Here is a summary of company and related incident:
Its a summary of email received from engagement partner:
“Osprey co’s 4 factories leaked a small amount of toxic chemical into atmosphere.factory’s operations halted and decision made to permanently closed the site. Though this a significant event for company and will result in relocation and some restricting of operations.
It is not considered to be threat to a going concern status. Cost of closure of factory have been estimated to be $1.25 m, which is expected to be material to financial statements and a provision has been set up in respect of these costs.”REQUIREMENT :
“Recommend the principal audit procedures to be performed in respect of the costs of closure of the factory”
My answer:
– Confirm that provision meets the recognition requirements of IAS 37 as whether a detailed form plan is in place and the entity has started to implement the plan, or announced its main features to those affected.
– Discuss with mangament whether cost estimated regarding closure of factory is reasonable
– Review financial statement disclosures in respect of provision, to ensure that they are sufficiently accurate and detailed to meet IAS37 requirements.
– Review board minutes to assess mangaments views regarding closure of factory.
I am looking forward to hear from you.
Thanks in advance.
Hi
Which question number is this?
From the information that you have given I would do the following:
Leak of Chemical
Discuss with management if there any pending litigation with regards to the leak and request permission to contact their legal counsel to obtain independent evidence to support this. Then as per IAS37 I would ensure that the necessary provisions have been recorded and disclosed.Inspect and obtain permission to speak to clients insurers to assess the level of cover and ensure that this has been adequately disclosed.
Inspect Board minutes and all documentation which relates to the incident to gain sufficient appropriate evidence.
Factory Building/Site
The factory and land assuming to be owned by the client, will be subject to an impairment review as is no longer in use, an independent valuation of both should be conducted, and would need to check that this has been accurately recorded and disclosed.The assets within the factory should also be subject to an impairment review and not be recorded in the FS as carrying assets. Ensure that these have also been correctly treated.
All assets in relation the building/site & Factory materials etc should be separately disclosed on the Face of the SOFP & SPLOCI as per IFRS5, we would ensure that the correct treatment and disclosures have been made by management.
Other Disclosures & Provisions
The relocation costs and provisions for each of the sites should be recorded if known, review all Professional fees incurred to assess if contracts have been entered into and assess the treatment of substance over form.Going Concern
You have said that its not a Going Concern, you must gain sufficient appropriate evidence to support this, the discussions and supporting documentation gained from discussions with Insurers and Legal Counsel may support this, but will the company have suffered a risk to its Reputation which may impair the Going Concern.Sorry I have waffled a bit, could you let me know which question number in the Bpp book this is.
Thanks
@elsie2009 said:
HiWhich question number is this?
From the information that you have given I would do the following:
Leak of Chemical
Discuss with management if there any pending litigation with regards to the leak and request permission to contact their legal counsel to obtain independent evidence to support this. Then as per IAS37 I would ensure that the necessary provisions have been recorded and disclosed.Inspect and obtain permission to speak to clients insurers to assess the level of cover and ensure that this has been adequately disclosed.
Inspect Board minutes and all documentation which relates to the incident to gain sufficient appropriate evidence.
Factory Building/Site
The factory and land assuming to be owned by the client, will be subject to an impairment review as is no longer in use, an independent valuation of both should be conducted, and would need to check that this has been accurately recorded and disclosed.The assets within the factory should also be subject to an impairment review and not be recorded in the FS as carrying assets. Ensure that these have also been correctly treated.
All assets in relation the building/site & Factory materials etc should be separately disclosed on the Face of the SOFP & SPLOCI as per IFRS5, we would ensure that the correct treatment and disclosures have been made by management.
Other Disclosures & Provisions
The relocation costs and provisions for each of the sites should be recorded if known, review all Professional fees incurred to assess if contracts have been entered into and assess the treatment of substance over form.Going Concern
You have said that its not a Going Concern, you must gain sufficient appropriate evidence to support this, the discussions and supporting documentation gained from discussions with Insurers and Legal Counsel may support this, but will the company have suffered a risk to its Reputation which may impair the Going Concern.Sorry I have waffled a bit, could you let me know which question number in the Bpp book this is.
Thanks
Bro, its a question from June 2012. question name is “lapwing” in BPP.
I think you misunderstood question requirement. Requirement was to listing audit procedures in relation to “cost of closure of factory”.
So audit procedures regarding impairment of assets isn’t required.
Same goes for going concern.
Question required audit procedures in respect of factory closure cost.
IMO rest of the audit procedures which you mentioned are pretty much good.
My apologies for the misinterpretation.
IAS37 still applies as does IFRS5 Assets held for sale/discontinued operations as will need to ascertain if management have communicated closure etc.
I will have a look at the full question and requirement later!
PS. I am not a “Bro”
@elsie2009 said:
My apologies for the misinterpretation.IAS37 still applies as does IFRS5 Assets held for sale/discontinued operations as will need to ascertain if management have communicated closure etc.
I will have a look at the full question and requirement later!
PS. I am not a “Bro”
Oops sorry my mistake :/.
Yeah I agree with you that IAS 37 should be applied. I already mentioned that your last post contained very valid audit procedures in relation to question except going concern and impairment part.
And Thank you for your replies.
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