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Q1. Finance charges – can we mention that the overdraft interest is 155/900 = 17%. of the total finance costs? or is this irrelevant. As I think this is probably more accurate rather than lumping it together in solutions: Finance cost / ( Non current liabilities + overdraft).
Tax Expense: The SOFP states taxation charges is $50,000 and tax expense in P/L is $70,000, hence a risk that the tax has been understated by $20,000. So if we reduce that in SOFP it will make our financial position better, is this correct. ?
Provision – The provison of $250,000 has been included in cost of sales, but the additional $200,000 has not been included in the COS, if this is adjusted there is a risk that profits are overstated. If I look at the SOFP $500m provisions – are these made of the $250,000 and is the $200,000 included in this figure?
Revaluation of properties – are carried out by a independent expert who has no interest to the client- it states on solution that there is a risk that non current assets are overstated – as parker co faces solvency problems potential management bias to improve the financial position – does this mean that the valuation report needs to be inspected to ascertain that those figures provided matches with the revaluation. To reduce the audit risk of the management trying to manipulate figures in favor of the company to make the financial position in a better state.
IAS 1 – does this include OCI?
Can you infer anything from the fact that overdraft interest is 17% of total finance costs? If you can, then it’s a perfectly sensible statistic to have calculated. But if you can’t, …….
Re the tax charge and the tax provision ….. the statement of financial position does NOT say that tax charges are $50,000. It says that the tax liability to be paid on the due date is estimated at $50,000. The tax CHARGE based on the profits for the year is (according to your post) $70,000
If you don’t understand this and the difference between a tax charge and a tax liability, may I suggest that you check out mini exercises 6 at the back end of the F7 notes
I don’t have the question in front of me nor readily available but if there’s a debit in cost of sales of a $250,000 provision movement then the credit must be somewhere and it sounds safe enough to assume that it is in fact included within the provision figure on the statement of financial position
ISAs state that the auditor has ultimate responsibility to gather sufficient appropriate audit evidence to support their opinion. They cannot rely entirely on anyone else in their search for sufficient appropriate audit evidence for any materiel item / matter within the financial statements.
Of course the auditor should obtain a copy of the valuer’s report and assess it for reasonableness. They should assess whether the valuer appears to be independent, sufficiently skilled and experienced, has arrived at an amount that is in line with the auditor’s assessment of the value of the buildings.
There is a recent article concerning “application of professional scepticism” where it is suggested that an even healthier degree of scepticism when compared with “normal” situations should be applied by auditors. And we have such a situation here where temptation to manipulate is greater because of the financial predicament in which the company finds itself
Is that ok?
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