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Question 3a

You are the manager responsible for the audit of Setter Stores Co, a company which operates supermarkets across the country. The final audit for the year ended 31 January 2013 is nearing completion and you are reviewing the audit working papers. The draft financial statements recognise total assets of $300 million, revenue of $620 million and profit before tax of $47•5 million.

An issue from the audit working papers is summarised below:

Assets held for sale

Setter Stores Co owns a number of properties which have been classified as assets held for sale in the statement of financial position. The notes to the financial statements state that the properties are all due to be sold within one year. On classification as held for sale, in October 2012, the properties were re-measured from carrying value of $26 million to fair value less cost to sell of $24 million, which is the amount recognised in the statement of financial position at the year end. (8 marks)

Required:

Comment on the matters to be considered, and explain the audit evidence you should expect to find during your file review in respect of each of the issues described above.