(iii) Property development
– Material to assets (with calculation)
– Incorrect valuation (non-compliance with IFRS 13); FV should be adjusted for all costs associated with alternative use

Difficulties when performing audit:
– Conversion costs will be based on estimation and will be inherently uncertain – hence challenge to obtain sufficient appropriate audit evidence that all costs have been identified and accurately quantified
– Judgement required to identify property’s highest and best use per IFRS 13
– Per IFRS 13, highest and best use must be:

physically possible – requires assessment of construction industry expert
legally permissible – requires confirmation from local planning authority
financially feasible – requires assessment of whether Awdry Co will have sufficient funds to complete development

– Valuation must be compared to the property’s fair value in its existing use and other potential uses
– May be other potential uses which have not been considered.

Procedures:
– Physical inspection of building by auditor
– Agree carrying amount to non-current asset register
– Obtain valuation of completed development by independent external expert
– Obtain details of external expert including assessment of professional certification, experience, reputation and objectivity
– Inspect quotation/contract with building contractor to confirm cost of £1·2 million
– Inspect planning permission from local authority in order to ensure alternative use of property has been approved
– Inspect correspondence with local council confirming fees of £173,000
– Discuss with management all alternative uses of property, explaining IFRS 13 valuation principles and confirming no further fees/costs payable
– Review board minutes for evidence of discussion of development
– Review cash flow statements and forecasts to ensure project is financially feasible for Awdry Co
– Obtain written representations from management confirming all details and costs concerning development have been disclosed to auditor

Maximum marks 5 –––