Factories

Generally up to 1½ marks for each matter and up to 1 mark for each evidence point explained:

Matters:

– Materiality of factories to statement of financial position
– Government regulation is an indicator of impairment
– Management need to conduct an impairment review
– Implication for financial statements if factories are overstated
– Impairment review may reveal that factories are not overstated
– Research costs may not be capitalised
– No going concern issues this year but could be a longer term problem

Evidence:

– A copy of the government regulation 
– Agreement of the carrying value of the factories making this product to the non-current asset register and general ledger
– A review of forecast financial statements and management accounts to confirm the amount of revenue still being generated by the factories
– A copy of and assessment of management’s impairment test
– A discussion with management regarding the potential future use of the factories, and whether the potential new product can be produced by them
– Confirmation that the research costs are included in operating expenses, and have not been capitalised

Maximum marks 8