Generally 1 mark for each relevant point of discussion and well explained audit procedure:
(a) Asset held for sale
(i) Audit evidence
– Discussion is relevant but management’s assertions must be corroborated
– Discussion alone is not sufficient to reach an audit conclusion
– Evidence not obtained on whether IFRS 5 classification criteria have been met
– Evidence not obtained on whether disclosure of discontinued operations is necessary
(ii) Further procedures
– Review board minutes to confirm the sale approval and date
– Correspondence with estate agents to confirm that the factory is being actively marketed
– Confirmation, for example, by a review of production schedules, inventory movement records and payroll records that production at the factory has stopped
– Auditor’s expert to confirm the fair value of the property and agree that this figure has been used in the impairment calculation
– Using management accounts, determine whether the factory is a separate major line of business in which case its results should be disclosed as a discontinued operation
(iii) Report to those charged with governance
– Should be controls in place over year-end journals (2 marks for detailed discussion)
– Finance director should not have to ask the audit team to check his work
Maximum marks 9