Question

Question

Jack is performing the audit on leases of Anglo Ltd for the year ended 31 December 2019. From the ledger, Jack noticed that there are three items, which are on the lease, i.e. a van, a lathe machine and the oven. As part of the audit, Jack would send standard confirmation letters to the lessors. Two days before the end of the fieldwork,Jack received confirmation from the van’s lessor. Jack’s client has had a short payment of the van lease by$10,000. Jack sent the second reminder confirmation and managed to receive the confirmation from the lathemachine’s lessor. The lease would only start from 1 January 2020. Jack has to yet to receive any confirmationpertaining to the leasing of the oven.

Requirements:

a)Suggest three (3) actions/procedures that Jack should take in the future to make sure that the confirmation letter will be received and answered promptly.
b)Propose two (2) further actions/procedures that Jack should take for the discrepancies to two of the items listed above.

Answer 1

Answer a)

Three actions that Jack must take to ensure this doesn't happen are:

1. Jack having gain the experience that delay can happen in receiving confirmations can occur, should ask for confirmations well in advance from next year.

2. Jack can send a second and then third reminder for confirmation if needed.

3) Jack can do a telephonic conversation and ask to send the confirmation.

b) For the discrepancies Jack would:

1) For 10,000 not paid by his client for lease, he has to mention this to his client & ask him to either correct the liability value or create a new one.

2) The value of the lease has to be paid has to be mentioned in the auditor's report.

For the other discrepancy:

1) The books have to corrected since the lease has not been started this year. For this it has to be struck from the balance sheet of this year.

2) In note to financial statements, a disclosure has to be given. In Auditor's report also this thing would be highlighted.