IAS 10 Events After The Reporting Period

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Question 2b

You are a manager in the audit department of Williams & Co and you are reviewing the audit working papers in relation to the Francis Group (the Group), whose financial year ended on 31 July 2014. Your firm audits all components of the Group, which consists of a parent company and three subsidiaries – Marks Co, Roberts Co and Teapot Co.

The Group manufactures engines which are then supplied to the car industry. The draft consolidated financial statements recognise profit for the year to 31 July 2014 of $23 million (2013 – $33 million) and total assets of $450 million (2013 – $455 million).

Information in respect of three issues has been highlighted for your attention during the file review.

(b) In September 2014, a natural disaster caused severe damage to the property complex housing the Group’s head office and main manufacturing site. For health and safety reasons, a decision was made to demolish the property complex. The demolition took place three weeks after the damage was caused. The property had a carrying value of $16 million at 31 July 2014.

A contingent asset of $18 million has been recognised as a current asset and as deferred income in the Group statement of financial position at 31 July 2014, representing the amount claimed under the Group’s insurance policy in respect of the disaster. (7 marks)

Required:
Comment on the matters to be considered, and explain the audit evidence you should expect to find during your review of the audit working papers in respect of each of the issues described above.

Note: The split of the mark allocation is shown against each of the issues above.

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