This scenario relates to four requirements.
Vieri Motor Cars Co (Vieri Co) manufactures a range of motor cars and its year end is 30 June 20X5. You are the audit supervisor of Rossi & Co and are currently preparing the audit programmes for the year-end audit of Vieri Co.
You have had a meeting with your audit manager and he has notified you of the following issues identified during the audit risk assessment process:
Land and buildings
Vieri Co has a policy of revaluing land and buildings, this is undertaken on a rolling basis over a five-year period.
During the year Vieri Co requested an external independent valuer to revalue a number of properties, including a warehouse purchased in January 20X5. Depreciation is charged on a pro rata basis.
Work in progress
Vieri Co undertakes continuous production of cars, 24 hours a day, seven days a week. An inventory count is to be undertaken at the year end and Rossi & Co will attend.
You are responsible for the audit of work in progress (WIP) and will be part of the team attending the count as well as the final audit. WIP constitutes the partly assembled cars at the year end and this balance is likely to be material.
Vieri Co values WIP according to percentage of completion, and standard costs are then applied to these percentages.
(a) Explain the factors Rossi & Co should consider when placing reliance on the work of the independent valuer. (5 marks)