2  Generally up to 1 mark for each relevant matter considered, and 1 mark for each well explained point on audit 
evidence.
  (a)  Decommissioning provision

Matters:
   –  Materiality of the provision
   –  Requirements of ISA 540 regarding obtaining appropriate evidence
   –  Unusual that a decommissioning provision has reduced in value but there could be valid reasons
   –  Provision should be measured at best estimate and discounted to present value
   –  The reason for the change in interest rate needs to be fully understood
   –  Consideration of accounting entries and whether they indicate an attempt to boost profit for the year
   –  Whether it is appropriate that management has not used an expert to determine the estimate

Evidence:
   –  A copy of management’s calculation of the $430 million provision, with all components agreed to underlying documentation, and arithmetically checked
   –  Notes of a meeting with management, at which the reasons for the reduction in the provision were discussed
   –  Copies of the source data used to produce management’s estimate 
   –  A comparison of the calculation for this year’s provision with previous years, confirming consistency in the overall approach used by management
   –  Copies of the underlying information relating to the expected costs of the decommissioning
   –  An evaluation of all key assumptions, considering consistency with the auditor’s knowledge of the business, and a conclusion on their validity
   –  An independent estimate prepared by the audit team, compared to management’s estimate, and with significant variances discussed with management
   –  Alternatively, an estimate prepared by an auditor’s expert, with all workings and assumptions evaluated by the audit team
   –  A schedule of the movement in the provision, checked for arithmetical accuracy, opening and closing figures agreed to the draft financial statements and general ledger
   –  Evaluation, and a conclusion on the appropriateness of the accounting entries used, especially in relation to the profit impact of the entries
   –  A copy of the notes to the financial statements which describe the decommissioning provision, reviewed for completeness and accuracy

Maximum marks   10