You are the manager responsible for the audit of Kicap Manis Berhad, a listed company, for the year ended 31 December 2019. The main business activity of Kicap Manis Berhad is the manufacture of farm machinery. The audit work has been completed, and you are reviewing the working papers in order to draft a report to those charged with governance. During the audit of property, plant and equipment (PPE), the audit team found no material misstatement but the following issues have come to your attention. It was discovered that authorization had not been gained for the purchase of office equipment with a cost of RM315,000. The officer in charge of the purchase claimed that the management has conveyed their agreement with the purchase in the management team monthly meeting, but the audit team has not been furnished with such minutes of meeting even after numerous requests. The client is using an internally developed PPE system, PropertyCare, to maintain the records of the PPE. It was discovered that due to programming problem, the application of some PPE costs at acquisition and depreciation charged was inaccurate. Despite the amount involved is immaterial, this has resulted in the auditors having difficulty in verifying the PPE ending balance feared that the system glitch could have affected the whole PPE portfolio. The audit team also has also raised concern on the inconsistent application of depreciation policy on some of the PPE, which has resulted in some of the PPE appeared to be inadequately provided for depreciation. Discussion with the management revealed that the management is aware of the issue, but their justification of doing so is to alleviate the adverse effect towards the company’s profit. Furthermore, the management has made it clear that all changes on the depreciation policy have been disclosed in the notes to the account. In the previous years, the company purchased several landed properties and rent them out as a source of their rental income. The properties have been revalued at the year-end in accordance with FRS 140 – Investment Property. As at 31 December 2019, the properties have been recognised on the balance sheet at a fair value of RM10.5 million, and the total assets are RM245.2 million. An external valuer has been appointed to determine fair value for each property. However, it has come to your knowledge that the valuer has just recently established its service in October 2019. The Board of Directors resolution dated 30 October 2019 stated that the company has agreed to acquire one bus for the purpose of transporting the workers from their homes to the company’s factory. The cost of acquiring the bus as stated in the resolution was approximately RM450,000 and the bus was to be purchased from S-Volvo Malaysia Sdn. Bhd. The audit team, however, discovered that the bus was purchased at a value of RM580,000, way above the agreed amount. Required: a. For each of the issue above, dicsuss and explain the possible impact towards the company and suggest the relevant recommendation for each issue that can improve the management of PPE in Kicap Manis Berhad. b. Recommend the substantive audit procedures that should have been performed to obtain evidences relevant to PPE during the year ended 31 December 2019. c. In view of the issues raised during the audit of PPE for Kicap Manis Berhad, how would these issues have affected your audit work? Please provide TWO (2) relevant articles for supporting your answer.
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You are the manager responsible for the audit of Kicap Manis Berhad, a listed company, for the year ended 31 December 2019. The main business activity of Kicap Manis Berhad is the manufacture of farm machinery. The audit work has been completed, and you are reviewing the working papers in order to draft a report to those charged with governance. During the audit of property, plant and equipment (PPE), the audit team found no material misstatement but the following issues have come to your attention.
It was discovered that authorization had not been gained for the purchase of office equipment with a cost of RM315,000. The officer in charge of the purchase claimed that the management has conveyed their agreement with the purchase in the management team monthly meeting, but the audit team has not been furnished with such minutes of meeting even after numerous requests.
The client is using an internally developed PPE system, PropertyCare, to maintain the records of the PPE. It was discovered that due to programming problem, the application of some PPE costs at acquisition and
The audit team also has also raised concern on the inconsistent application of depreciation policy on some of the PPE, which has resulted in some of the PPE appeared to be inadequately provided for depreciation. Discussion with the management revealed that the management is aware of the issue, but their justification of doing so is to alleviate the adverse effect towards the company’s profit. Furthermore, the management has made it clear that all changes on the depreciation policy have been disclosed in the notes to the account.
In the previous years, the company purchased several landed properties and rent them out as a source of their rental income. The properties have been revalued at the year-end in accordance with FRS 140 – Investment Property. As at 31 December 2019, the properties have been recognised on the balance sheet at a fair value of RM10.5 million, and the total assets are RM245.2 million. An external valuer has been appointed to determine fair value for each property. However, it has come to your knowledge that the valuer has just recently established its service in October 2019.
The Board of Directors resolution dated 30 October 2019 stated that the company has agreed to acquire one bus for the purpose of transporting the workers from their homes to the company’s factory. The cost of acquiring the bus as stated in the resolution was approximately RM450,000 and the bus was to be purchased from S-Volvo Malaysia Sdn. Bhd. The audit team, however, discovered that the bus was purchased at a value of RM580,000, way above the agreed amount.
Required:
a. For each of the issue above, dicsuss and explain the possible impact towards the company and suggest the relevant recommendation for each issue that can improve the management of PPE in Kicap Manis Berhad.
b. Recommend the substantive
c. In view of the issues raised during the audit of PPE for Kicap Manis Berhad, how would these issues have affected your audit work?
Please provide TWO (2) relevant articles for supporting your answer.
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