Question

In: Accounting

Consider each of the following independent and material situations. In each case: the financial report date...

Consider each of the following independent and material situations. In each case:
the financial report date is 30 June 2019;
the field work was completed on 12 August 2019;
the Directors’ Declaration and the Audit report were signed on 19 August 2019;
the completed financial report accompanied by the signed Audit report were mailed to the shareholders on 18 September 2019.
You are an auditor of KK Limited (KK), a company specialising in industrial property development. On 10 August 2019, you become aware that a major overseas investor has informed the management of KK of their intention to withdraw their investment in a proposed major development. Based on its discussions with the investor and previously pledged funds from them, KK has incurred substantial costs in feasibility studies, structural engineering reports and architectural plans. A significant portion of these costs have been capitalised. The management is dependent on finding a new investor to be able to meet these expenses and to continue with the project.
select the appropriate action from the list below, and justify your response.
Adjust the 30 June 2019 financial report.
Disclose the information in the notes to the 30 June 2019 financial report.
Request that the client recall the 30 June 2019 financial report for revision.
No action is required
. ii. If no action is taken by management for each of the events described above , determine the most appropriate audit opinion to be issued.

Solutions

Expert Solution

As per IAS 38, Development costs are capitalised as an intangible asset if all of the following criteria are met:

a. The technical feasibility of completing the asset so that it will be available for use or sale

b.The intention to complete the asset and use or sell it;

c.The ability to use or sell the asset;

d.The asset will generate probable future economic benefits and demonstrate the existence of a market or the usefulness of the asset if it is to be used internally;

e.The availability of adequate technical, financial and other resources to complete the development and to use or sell it; and.

Development costs are capitalised as an intangible asset if all of the following criteria are met [IAS 38R.57]

a.The technical feasibility of completing the asset so that it will be available for use or sale;

b.The intention to complete the asset and use or sell it;

c.The ability to use or sell the asset;

d.The asset will generate probable future economic benefits and demonstrate the existence of a market or the usefulness of the asset if it is to be used internally;

e.The availability of adequate technical, financial and other resources to complete the development and to use or sell it; andf.The ability to measure reliably the expenditure attributable to the intangible asse

f.The ability to measure reliably the expenditure attributable to the intangible asset.

In the given scenario, it has been noted that majority of investor is opting out for investment and inteniton to complete the assets is not going to happen. Auditors should ask Management to recall the financials statements and adjust the cost already capitalized. Cost already capitalized need to be expensed in guidance with above literature of IAS 38. Further, a disclosure is required in notes to accounts while performing post balance sheet events and since this is a major event to auditors need to adjust their financials and proper disclosure is required.

In case management, do not take action agains the event, then auditor need to modify their opinion in audit report and issue a Disclaimer in their audit report regarding the scope of work.

A disclaimer audit report is issued when the limitation on scope is imposed by client, as a result the auditor is unable to obtain sufficient appropriate audit evidence.


Related Solutions

Consider each of the following independent and material situations. In each case: • the financial report...
Consider each of the following independent and material situations. In each case: • the financial report date is 31 December 2019; • the field work was completed on 12 February 2020; • the directors declaration and the audit report were signed on 19 February 2020; and • the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020 A. You are an auditor pf PP Limited (PP), a company specialising in industrial property...
Consider each of the following independent and material situations. In each case: • the financial report...
Consider each of the following independent and material situations. In each case: • the financial report date is 31 December 2019; • the field work was completed on 12 February 2020; • the directors declaration and the audit report were signed on 19 February 2020; and • the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020 A. You are an auditor pf PP Limited (PP), a company specialising in industrial property...
Consider each of the following independent and material situations. In each case: • the financial report...
Consider each of the following independent and material situations. In each case: • the financial report date is 31 December 2019; • the field work was completed on 12 February 2020; • the directors declaration and the audit report were signed on 19 February 2020; and • the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020 A. You are an auditor pf PP Limited (PP), a company specialising in industrial property...
Consider each of the following independent and material situations. In each case: • the financial report...
Consider each of the following independent and material situations. In each case: • the financial report date is 31 December 2019; • the field work was completed on 12 February 2020; • the directors declaration and the audit report were signed on 19 February 2020; and • the completed financial report accompanied by the signed audit report were mailed to shareholders on 18 March 2020 A. You are an auditor pf PP Limited (PP), a company specialising in industrial property...
Consider each of the following independent and material situations. In each case: • the balance date...
Consider each of the following independent and material situations. In each case: • the balance date is 30 June 2020. • the fieldwork was completed on 25 August 2020. • the financial report and audit report were signed on 28 August 2020. • the financial report and audit report were mailed to the members on 1 September 2020. (i) Your client, Central Mining, owns a mineral exploration licence in Central Australia. At 30 June 2020 this licence was valued by...
Consider each of the following independent material events. In each case the:balance date is June 30...
Consider each of the following independent material events. In each case the:balance date is June 30 2019.financial report audit was signed on 12 August 2019.financial report and the audit report was mailed to members on 20 August 2019.Event 1: On 10 August you discover that a debtor of your client, LMD Ltd, went into liquidation on 7 August. The debtor was reported as owing $475,000 at balance date. A specific provision was raised of $300,000 in April 2019. The preliminary...
Consider each of the following independent and material situations, identified below (i-v). In each case: •...
Consider each of the following independent and material situations, identified below (i-v). In each case: • the balance date is 30 June 2020; • the field work was completed on 12 August 2020; • the Directors’ Declaration and the Audit report were signed on 19 August 2020; • the completed financial report accompanied by the signed Audit report was mailed to the shareholders on 25 August 2020. (i) On 29 September 2020, you discovered that a debtor at 30 June...
Question 4 (15 marks) Consider each of the following independent and material situations, identified below (i-vi)....
Question 4 Consider each of the following independent and material situations, identified below (i-vi). In each case: the balance date is 30 June 2020; the field work was completed on 12 August 2020; the Directors’ Declaration and the Audit report were signed on 20 August 2020; the completed financial report accompanied by the signed Audit report were mailed to the shareholders on 26 August 2020. On 26 September 2020, you discovered that a debtor at 30 June 2020 had gone...
For each of the following independent situations, indicate the reason for and the type of financial...
For each of the following independent situations, indicate the reason for and the type of financial statement audit report that you would issue. Assume that all companies mentioned are private companies and that each item is at least material. a. Thibodeau Mines, Inc., uses LIFO for valuing inventories held in the United States and FIFO for inventories produced and held in its foreign operations. b. Walker Computers is suing your client, Super Software, for royalties over patent infringement. Super Software's...
For each of the following independent situations, assume that any amounts would be material. (I) Indicate...
For each of the following independent situations, assume that any amounts would be material. (I) Indicate the TYPE of appropriate audit report; A. unqualified, B. qualified or adverse, C. qualified or disclaimer, D. Disclaimer, E. Qualified only, or F. Other. INDICATE the situation involved, i.e. Accounting situation, and DISCUSS the situation. (II) State whether an explanatory paragraph would be included, and if so, what would be included in the explanatory paragraph. 1. Gelato Bros., Inc. leases its manufacturing facility from...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT