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Sir in the exam I came across a scenario which mentioned about the damage caused to a timber plantation due to a storm resulting in a decrease of $70m in Fair value of timber plantation. The carrying amount of timber plantation was $500m but after the disaster the FV of timber plantation was reduced to $430m. The valuation of FV of $430m was carried out by experts.
The Question asked me to recommend substantive procedures on the damage caused by the storm and also on the valuation of Fair value of timber plantation by experts and the Question carried 6 marks. So I recommended the following procedures mentioned below.
1. Review damage report to assess the
damage caused to timber plantation.2. To physically verify the damage to
timber plantation, visit the site of
damage.3. Discuss with experts the method and
rationale behind the valuation of
timber plantation to verify its
resonableness.4. Obtain the valuation of timber
plantation done by the experts and
revalue it using auditors own
methodology.5. Review market data to verify fair value
of timber plantation of $430m.6. Review FAR to verify Carrying value of
timber plantation and compare it with
F.V to verify impairment of $70m.*So Can you tell me that are these procedures correct or are some of them or all of them incorrect?
I am sorry but OT does not have the resources to offer a marking service – and it would open floodgates to similar requests if I was to assess your suggested points.
Whether the points you wrote in the exam are “correct” will be judged by the marker in the light of the precise wording of the requirement and the details provided in the scenario – details that are not available as Qs from the March 2021 exam have not (yet) been published.
I will however comment on a couple of your points – in 3. by what means will you “verify reasonableness”? If by comparison with a market value/something published this needs to be combined with the idea in point 5 which, as it stands, is too vague. What is this “market data” and how will a “review” confirm the FV of a plantation in its entirety at such an amount? Since the purpose of the timber plantation is presumably the commercial sale of timber, the value of the plantation will presumably reflect the market price of timber (which you can reasonably guess might have a price index). In 6 – a marker should not have to guess what is “FAR”.
Thank you sir, I understand your point here about the marking service and You mentioned some issues in point no.3, 5 & 6.
In point no 3. I meant the resonableness of assumptions taken by experts in valuing the fair value of timber plantation, I wrote the word assumption in my procedure in the exam.
In point no. 5, I meant the market data like you mentioned the price index of timber.
In Point no 6 from abbreviation “FAR” I meant fixed asset register.
And sir do you find any issue or vagueness in point 1,2 & 4?
I have nothing to add – it is not possible to comment on the relevance of the other points in the absence of further details – which I am not asking you to provide. You should put this behind you – nothing I say can make any difference to your mark.
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