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The final materiality figure for the 2021 audit of the Department of Corrections was set at R150 million.
During the audit of Capital Assets, the auditors identified misstatements in the valuation of major moveable tangible
assets. The financial reporting framework for Departments requires a department to record assets on receipt of the item
at cost of acquisition. Where the cost cannot be determined accurately, the asset should be stated at fair value. Where
fair value cannot be determined, the asset should be included in the asset register at R1. The Department of Correction’s
major movable tangible assets as disclosed in disclosure note 35.1 to the financial statements did not in all instances
reflect the cost or fair value of the assets and consequently assets were overvalued by R193 million.
Discuss the effect of the misstatement identified on the audit opinion.
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- You are reviewing the results of the Firestone audit. These are the details of the summay of identified misstatements: • Allowance for Doubtful Accounts: $60,000 misstatement (over) • Sales Revenue: $10,000 misstatement (under) • Total identified misstatements: $50,000 (impact on Assets, pre-tax income, and equity) • Performance materiality was set at $60,000 REQUIRED: a) If overall materaility for the audit was set at $30,000, what type of audit report would be issued? Why? b) If overall materiality for the audit was set at $75,000, what type of audit report would be issued? Why?In performing risk assessment procedures for property, plant and equipment, an auditor may inquire of the client personnel which of the following questions? A. Are all property, plant and equipment purchases, including finance leases, properly authorized, recorded in accordance with the capitalization threshold (e.g., P10,000) and in correct accounting period? B. Are depreciation policies in accordance with applicable financial reporting framework? C. All of the choices. D. Are disposals of property, plant and equipment properly authorized, removed from records including depreciation, and recorded in correct accounting period?15. An internal control objective concerning property, plant and equipment (PPE) acquisitions is that they be recorded at the correct amounts and in the proper period and properly classified. In which of the following conditions would an auditor most likely assess a high level of risk of material misstatement? All material acquisitions of PPE are required to be approved by the board of directors Most additions are self-constructed by the entity a. b. C. Recently acquired loans include covenants that preclude further plant acquisitions for 5 years. d. Gross PPE increased 30% during the current period
- Analyse and explain how the following situation would affect the audit report for the financial year ended on 31 December 2020. The client company, Explorer Ltd, has included $4 million mineral leases in the financial statement, which are valued by the client using fair value methodologies. However, to be able to realise the value of the mineral lease balance, additional funding is required to successfully commercialise the mineral leases. It’s uncertain that the client is able to obtain this additional funding. The auditors believe that the information is adequately disclosed by the client in the footnote of the financial report. The carrying value of the mining lease represents 6% of reported net profit for the 2020 financial year, whereas the client’s materiality is 5% of reported net profit.The least effective means for the auditor to determine whether a recorded intangible asset possesses the characteristic of an asset is a. Vouch the purchase by reference to underlying documentation. b. Inquire as to the status of the patent application. c. Evaluate the future revenue-producing capacity of the intangible asset. d. Analyze the research and development expenditures to determine that only those expenditures possessing future economic benefits have been capitalized.In performing risk assessment procedures for property, plant and equipment, an auditor may inquire of the client personnel which of the following questions? O Are depreciation policies in accordance with applicable financial reporting framework? O All of the choices. O Are all property, plant and equipment purchases, including finance leases, properly authorized, recorded in accordance with the capitalization threshold (e.g., P10,000) and in correct accounting period? O Are disposals of property, plant and equipment properly authorized, removed from records including depreciation, and recorded in correct accounting period?
- the heightened risk of material misstatement. 6. Which of the. following techniques overstate long-lived assets? a. Overvalue existing assets. b. Include fictitious assets on the financial statements. c. Capitalize transactions that should be expensed. d. All of the above. can be used by management to 7. Which of the following analyses might an auditor perform as part of preliminary analytical procedures? a. Develop an overall estimate of depreciation expense. b. Compare capital expenditùres with the client's capital budget. c. Perform a trend analysis of the ratio of depreciation expense to total depreciable long-lived tangible assets. d. All of the above could be performed as part of preliminary analytical procedures. 8. Assume that the auditor decides to only, perform substantive tests of details when auditing the equipment account. Which of the following statements best describes the circumstancės associated with the client being audited? The client does not have effective controls…Munixipality X has been audited and the following findings have been reported: 1. Irregular expenditure of R20 million during the 2019/20 financial year 2. Unauthorised expenditure of R40 billion during the 2019/20 financial year Discuss the implications and meanings of these audit findings.16. In performing risk assessment procedures for property, plant and equipment, an auditor may inquire of the client personnel which of the following questions? Group of answer choices Are depreciation policies in accordance with applicable financial reporting framework? Are disposals of property, plant and equipment properly authorized, removed from records including depreciation, and recorded in correct accounting period? Are all property, plant and equipment purchases, including finance leases, properly authorized, recorded in accordance with the capitalization threshold (e.g., P10,000) and in correct accounting period? All of the choices.
- In performing risk assessment procedures for property, plant and equipment, an auditor may inquire of the client personnel which of the following questions? A. Are depreciation policies in accordance with applicable financial reporting framework? B. Are disposals of PPE properly utilized, removed from records including depreciation, and recorded in correct accounting period? C. All of the choices D. Are all PPE , including finance leases, properly authorized, recorded in accordance with the capitalization threshold (ex. 10,000) and in correct accounting period?The auditing procedure that could least likely lead the auditor to find unrecorded property, plant, and equipment disposals isA. Vouching purchase invoices for asset additions.B. Review of voucher for the payment of property taxes.C. Review of miscellaneous income accountD. Review of loan agreement for fixed assets used as collateralE. None of them3) b) During the audit, the team has identified the following errors: profit before tax for PSG is estimated at $3,000,000 for the year ended June 30, 2020, An error of $3,000 was found in the audit of depreciation expense of the warehouse purchased in January 2020. The management of PSG have indicated that they do not wish to amend the financial statements. i. An error of $350,000 in the valuation of work in progress was found as a number of the assumptions contain out of date information. The management of PSG have indicated that they do not wish to amend the ii. financial statements. Calculate Performance Materiality and utilize this to discuss the appropriate treatment of the above two errors.