It is 1 July 20X5. You are the manager responsible for the audit of Myron plc, a listed company and you are in the process of completing the audit of the financial statements for the year ended 31 March 20X5. The auditor’s report is due to be signed in the next few weeks. The company’s principal operating activity is the publication of trade and scientific journals. The draft financial statements recognise revenue of £108 million (20X4 – £102 million), profit before tax of £9·3 million (20X4 – £8·2 million) and total assets of £150 million (20X4 – £149 million).

You are in the process of reviewing the audit working papers and have identified the following potential issues:

Sale of division
Myron plc is at the advanced stage of negotiations to sell its scientific publishing division to a competitor. This division contributed revenue of £13 million and profit before tax of £1·4 million during the year to 31 March 20X5. The draft sale agreement which is due to be finalised by 1 August 20X5 shows an agreed sale price after costs of disposal of £42 million. The division is a separate cash generating unit of Myron plc. None of the assets of the division are held under a revaluation policy and depreciation is charged on a straight-line basis over the determined useful life of the assets.

The finance director of Myron plc has not made any disclosures with respect to the upcoming sale in the financial statements for the year ended 31 March 20X5 as he considers it to be part of next year’s accounting transactions. However, the division has been written down from its current carrying amount of £45 million to its estimated value in use of £41 million in the financial statements for the year ended 31 March 20X5.

First time adoption of IFRS® 16 Leases
Myron plc operates from leased premises and additionally holds leases for printing equipment for journals. These leases are material to the financial statements. The company has adopted IFRS 16 for the first time this year and has adjusted the opening balances and equity without restating comparatives as permitted by IFRS 16.

There is, however, no reference in the financial statements to the change in policy or the reasons for making the change to accounting policies. The adjustments have already been checked by the audit team and deemed appropriate.

Required:
(i) Comment on the completion matters to be considered in relation to the issues described and recommend the further actions necessary before the auditor’s report can be signed; and

(ii) Evaluate the implications for the auditor’s report if no adjustments are made to the financial statements. (15 marks)