- This topic has 7 replies, 2 voices, and was last updated 5 years ago by
.
- Posts
Can someone explain me the meaning of “Review the level of repair costs incurred post year-end and use these to assess the reasonableness of the provision.” This was in relation to audit risk response.
More specifically, What is post year end? Sorry to ask silly questions because English is my 3rd language and I am not able to understand what is meant by the above sentence.
Thanks
“pre” means before or in advance of – for example:
pre-arranged
pre-paid
pre-date
pre-year-end
“post” means after – for example:
post meridiem (“pm”)
post-mortem
post-year-endI recommend that you get used to looking up words in a good online dictionary:
https://www.merriam-webster.com/
https://dictionary.cambridge.org/dictionary/english/So suppose that the auditor is carrying out audit of FS for year end 30th june 2019, and today standing on 10th august 2019 it carries out review on repair costs. So does this mean that he will carry out review of repair costs between the dates 1st july to 10th august, and on this basis will assess the repair costs for the year end 30th june 2019??
Please provide more information/context to this question. To what do these repair costs relate?
Phrase from the question Sleeptight
Sleeptight requires customers who place an order to pay a deposit of 40% of the total order value at the time the order is placed. The beds will take four to eight weeks to build, and the remaining 60% of the order value is due within a week of the final delivery. Risks and rewards of ownership of the beds do not pass to the customer until the beds are delivered and signed for. “Beds also come with a two year guarantee and the financial controller has made a provision in respect of the expected costs to be incurred in relation to beds still under guarantee.”
Answer on audit response in BPP kit –
Establish the basis of the amount provided for and assumptions made by the financial controller.
Re-perform any calculations and establish the level of warranty costs in the year, and compare with the previous provision.
“Review the level of repair costs incurred post year-end and use these to assess the reasonableness of the provision.”So suppose that the auditor is carrying out audit of FS for year end 30th june 2019, and today standing on 10th august 2019 it carries out review on repair costs. So does this mean that he will carry out review of repair costs between the dates 1st july to 10th august, and on this basis will assess the repair costs for the year end 30th june 2019??
The review of actual repair costs after the year end is to assess the adequacy of the provision make at the end of the year – not the cost of repairs for a year. Suppose the company sells 500 beds a month and expects only 1% to be repaired under warranty and the average cost of a repair is $100. At the end of the year there will be 12,000 beds that have been sold in the last 2 years – so say provision is estimated at 12,000 x 1% x $100 = $12,000. If in the 2 months (say) after the end of the year end the company has spent $500 – $1,500 on actual repairs, that would look “reasonable”. If it had spent nothing – the auditor would question whether the provision was overstated (i.e. whether as many as 1% are repaired under warranty). If it had spent $5,000 (say) the auditor would question the adequacy of provision (i.e. whether it is understated). The provision would be understated if more than 1% of beds are repaired and/or the average cost of a repair is more than $100.
- The topic ‘Provision related’ is closed to new replies.