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The final materiality figure for the 2021 audit of the Department of Corrections was set at R150 million.
During the audit of Capital Assets, the auditors identified misstatements in the valuation of major moveable tangible
assets. The financial reporting framework for Departments requires a department to record assets on receipt of the item
at cost of acquisition. Where the cost cannot be determined accurately, the asset should be stated at fair value. Where
fair value cannot be determined, the asset should be included in the asset register at R1. The Department of Correction’s
major movable tangible assets as disclosed in disclosure note 35.1 to the financial statements did not in all instances
reflect the cost or fair value of the assets and consequently assets were overvalued by R193 million.
Discuss the effect of the misstatement identified on the audit opinion.
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- The final materiality figure for the 2019 audit of Takunda (Pty) was set at R150 million.During the audit of Capital Assets, the auditors identified misstatements in the valuation of major moveable tangible assets. The financial reporting framework for Takunda requires that the company records assets on receipt of the item at cost of acquisition. Where the cost cannot be determined accurately, the asset should be stated at fair value. Where fair value cannot be determined, the asset should be included in the asset register at R1. Takunda’s major movable tangible assets as disclosed in the financial statements did not in all instances reflect the cost or fair value of the assets and consequently assets were overvalued by R193 million. Discuss the effect of the misstatement identified on the audit opinionFor every of the following independent situation, discuss the issue and describe the impact on the audit record with provide examples i. During the audit, the crew discovers that one of the five improvement projects, valued at RM880,000 and included as intangible assets, does no longer meet the criteria for capitalisation. The finance director does not intend to alternate the accounting remedy adopted as she considers this an immaterial quantity.Rayan Company, a CPA firm, conducted an audit for the 2020 financial statements of Tia Corporation. During the course of the audit, the auditors noticed that repairs and maintenance expenses were recorded as an addition to fixed assets to decrease expenses amount in the financial statements. Which one of the following assertions was violated? Occurrence Completeness Existence Accuracy None of the above
- The accountant of Swift Inc. was preparing for the audit of its financial statements for the year ended December 31, 2022, and discovered that an automobile was being incorrectly depreciated. The automobile was purchased on January 1, 2021, for $50,000 and the estimated residual value after five years was expected to be $5,000. The company uses the straight-line basis for depreciating vehicles, but the residual value was not considered when determining the depreciation amount. The financial controller informed the accountant that the company was switching to the double- declining balance method of depreciation for the current and future years, as it was believed this method would more accurately portray the consumption of benefits received from the asset's use. Required: State whether it is a change in accounting estimate/policy or an accounting error. Prepare the journal entries required on December 31, 2022. Ignore income tax effects. Show all workingsYou are auditing Crown Corporation for the year ended 2022, Its reported net income for the year 2021 and 2022 were P 3,000,000 and P 4,000,000, respectively. During your audit, the following errors were revealed: 1. The inventory at the end of 2022 and 2023 were P 20,000 understated and P 18,000 overstated, respectively. 2. Recalculating the depreciation charges for 2023, you found out it was short by P 4,000. 3. The 15,000 insurance premium for three years was recorded using the income statement approach on January 1, 2021. No expense amount was extracted from the balance at the end 2021 and 2022. 4. An equipment was sold on December 31, 2022 for P 32,000. Its related cost was P 200,000 with zero carrying value on date of sale. The sale transaction was recorded on January 10, 2023. QUESTIONS: What is the correct net income for the year 2022? What is the correct net income for the year 2023?You are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock. 5.…
- You are the lead partner overseeing the audit for Camo Ltd, a privately owned company. The completion of the audit report is pending for the income year 2020 and you have noted several situations with possible actions. The situations are as follows: 1. Camo Corporation carries its property, plant, and equipment accounts at current market values. Current market values exceed historical cost by a highly material amount, and the effects are pervasive throughout the financial statements. 2. Management of Camo Corporation refuses to allow you to observe, or make, any counts of inventory. The recorded book value of inventory is highly material. 3. You were unable to confirm accounts receivable with Camo’s customers. However, because of detailed sales and cash receipts records, you were able to perform reliable alternative audit procedures. 4. One week before the end of fieldwork, you discover that the audit manager on the Camo engagement owns a material amount of Camo’s common stock. 5.…Based on the above and the result of your audit, answer the following: (Disregard tax implications) 1. How much is the total depreciation expense for 2020?a. P166,600 c. P161,200b. P177,498 d. P164,100 2. How much is the adjusted cost of property, plant and equipment as of December 31, 2020?a. P1,340,000 c. P1,230,000b. P1,055,000 d. P1,165,000 3.How much is the carrying amount of property, plant and equipment as of December 31, 2020?a. P435,160 c. P763,440b. P729,840 d. P860,400For the following independent situations, assume that you are the audit partner on the engagement: 1. The client recorded impairment of goodwill for $40,000 last year. It recorded reversal of impairment in goodwill for $20,000 this year after considering the carrying amount and recoverable amount of the cash generating unit. Net income is $10,000 in current year. Discuss the most appropriate type of opinion the auditor should issue. Explain briefly the reason for the opinion.
- Analyse and explain how the following situation would affect the audit report for the financial year ended on 31 December 2020. The client company, Explorer Ltd, has included $4 million mineral leases in the financial statement, which are valued by the client using fair value methodologies. However, to be able to realise the value of the mineral lease balance, additional funding is required to successfully commercialise the mineral leases. It’s uncertain that the client is able to obtain this additional funding. The auditors believe that the information is adequately disclosed by the client in the footnote of the financial report. The carrying value of the mining lease represents 6% of reported net profit for the 2020 financial year, whereas the client’s materiality is 5% of reported net profit.You are auditing Army Corporation's financial statements for the period ended December 31, 2021. Army Corporation is engaged in several lines of businesses: developing property for sale; holding real estate property for rental purposes and holding real estate properties for capital appreciation purposes. Four properties are currently classified as investment property. Your audit investigations revealed the following regarding the said properties: Real Property A was acquired in January of 2020 at P100M. The building's sewerage system was not operating and Army Corporation decided to incur expenditure amounting to P5M to make the sewerage system operational. It also decided to undertake major maintenance on the system at the end of 5 years. The company used the fair market model for this asset and has capitalized the asset at P115M (being the cost of P100M, expenditure of P5M and the present value of the planned expenditure at the end of five years at P10M). Fair value of the property…Profit before tax for Juventus is estimated at $3,000,000 for the year ended June 30, 2019, during the audit, the team has identified the following errors:i. An error of $3,000 was found in the audit of depreciation expense of the warehouse purchased in January 2019. The management of Juventus have indicated that they do not wish to amend the financial statements. ii. An error of $350,000 in the valuation of work in progress was found as a number of the assumptions contain out of date information. The management of Juventus have indicated that they do not wish to amendthe financial statements. Calculate Performance Materiality and utilize this to discuss the appropriate treatment of the above two errors.
