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    Ironman Co

    Uploaded by

    Ammar Ghaus

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Ironman Co

    Uploaded by

    Ammar Ghaus
    16 views2 pages

    Original Title

    IRONMAN CO

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    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    16 views2 pages

    Ironman Co

    Uploaded by

    Ammar Ghaus

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    18 It is 1 July 20X5. You are an audit manager in Spidey & Co.

    You are currently


    assigned to a new audit client, Ironman Co which has a year ended 31 March
    20X5. The draught financial statements show total assets of $15 million and
    profit before tax of $3 million. The following matters have been brought to your
    attention

    Depreciation
    Depreciation has not been provided on any non-current asset for a number of
    years. When asked why no depreciation is charged, the finance director gave
    the following response:

    ‘Property prices generally increase over time, so we don't depreciate buildings.


    Anyhow, if we had the buildings revalued, we would need to constantly amend
    the depreciation calculation to reflect the new valuation so it's easier and less
    time consuming not to bother with it at all. Other assets are not as significant
    in value and we usually sell them rather than scrap them so the losses on
    disposal are minimal and that's why we don't bothered appreciating those. Our
    previous auditors never questioned our approach so it can't be that much of a
    problem’.

    Company restructure
    At a meeting in March 20X5, the board approved the closure of a manufacturing
    site as part of a company restructure. The cost of the restructure is expected
    to be $1 million. The restructure was announced to employees in April 20X5.

    Inventory
    Spidey & Co were appointed auditors after the end of the financial year of
    Ironman Co. Consequently, the auditors could not attend the year-end
    inventory count. Inventory is included the financial statements at a value of
    $700,000.

    Required:

    a) Describe substantive procedures the auditor should perform to


    obtain sufficient and appropriate audit evidence in relation to
    depreciation.
    (6 marks)

    b) Describe substantive procedures the auditor should perform to


    obtain sufficient and appropriate order evidence in relation to the
    company restructure.
    (6 marks)

    c) Describe substantive procedures that auditors should perform to


    obtain sufficient and appropriate audit evidence in relation to
    inventory.
    (3 marks)
    The audit work is almost complete, and the auditor’s report is due to be
    signed next week. The auditor has concluded that there are no material
    misstatements in respect of the company restructure and
    inventory. Sufficient and appropriate evidence has been obtained in
    respect of both of these matters.

    The audit conclusion in respect of depreciation is that depreciation of $2.5


    million should have been charged on assets held by Ironman Co, $0.5
    million depreciation in respect of the current year, and $2 million in respect
    of previous years.

    Required:

    d) Discuss the issue and describe the impact on the auditor’s report, if
    any, should this issue remain unresolved.
    (5 marks)

    (20 marks)

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