ACCA AAA ^INT Syllabus D. Audit of Historical Financial Information - Changes in Accounting Policy - Past Papers ^{39 / 41}

Max noticed that a section of the audit file had not been completed on the previous year’s audit. The incomplete section relates to expenditure incurred in the year to 31 January 2013, which appears not to have been audited at all in the prior year. The expenditure of $1•2 million was incurred in the development of an internally generated brand name. The amount was capitalised as an intangible asset at 31 January 2013, and that amount is still recognised at 31 January 2014.

Required:

Explain the implications of this matter for the completion of the audit, and any other professional issues raised, recommending any actions to be taken by the auditor. (5 marks)

You are a manager in the audit department of Beech & Co, responsible for the audits of Fir Co, Spruce Co and Pine Co. Each company has a financial year ended 31 July 2011, and the audits of all companies are nearing completion. The following issue has arisen in relation to the audit of accounting estimates and fair values:

Pine Co

Pine Co operates a warehousing and distribution service, and owns 120 properties. During the year ended 31 July 2011, management changed its estimate of the useful life of all properties, extending the life on average by 10 years. The financial statements contain a retrospective adjustment, which increases opening non-current assets and equity by a material amount. Information in respect of the change in estimate has not been disclosed in the notes to the financial statements.

Required:

Identify and explain the potential implications for the auditor’s report of the accounting treatment of the change in accounting estimates. (5 marks)