Completion, Review and Reporting Flashcards
Marlos -19- matters to be considered and the audit evidence that should be on file
during your review of the audit file.
MARE Approach-Materiality, Accting Treatment, ROMM, Evidence 2 document.
Issues: Incorrect depreciation of of a ROU and consignment inventory accounted for as though owned and controlled by Marlos.
New Property Leases:
*ROU Value exceeds materiality threshold
*Intial measurement of lease liability & ROU is crucial
*Rent-Free period does not alter asset/liabilit measurement but impacts cashflows.
*Depreciation should be charged despite no lease payments during rent-free period.
*Maybe magmt bais to manipulate profits
Evidence Needed:
*Lease contract copy for terms, payments, implicit interest rate, and restoration obligations.
*Physical inspection evidence to confirm building exitence and condition.
*Agreement of present value calculation & lease asset figures.
*Recalculation of lease asset figures.
*NCA register extract and liability breakdown.
*Company policy on on NCA depreciation.
* Discussion notes of asset use & potential impairment.
* Proposed financial statement disclosures related to the lease.
Inventory:
* Inventory held on consignement, ownership w. supplier until sold.
* Only recognise inventroy when sold to TP.
* Current recognition results in overstated inventory & understated recievables.
* No effect on Net Assets suggests Mgmt incompetence not bias and further errors to FS no identified.
Evidence Needed
*Contract copy w. supplier to confrim terms.
*Inventory records to confirm value of unsold inventory.
*Confirmation from supplier on o.s amounts.
*Agreement of elgibile returnable inventory calculation.
*Discussion w. mgmt on misclassification rationale.
Marlos 19- Auditors Report
Impact on Auditor’s Report
*. Profit overstated by 4.1 mil due to depreciation charge for leased property.
* Material misstatement but not pervasive as it is single item.
* Qaulified opinion warranted due to material misstatement.
Proposed Auditor’s report:
*Qualified opinion paragraph at start of report- clearly states qualification due to material misstatement.
- Basis of Qualified Opinion paragraph- Explains reasons for qualification and quantifies impact of misstatement.
