Scenario 3

(a) SP Additions and disposals

-Exchange vehicles:$4.6m
-Cash consideration:$3.9m
-NBV:$1.8m
-Profit/Loss on disposal=(Sales proceed-NBV)=($4.6m-3.9m)-1.8m=-1.1m
 Inspect the asset registration card to confirm new 20 vehicles purchase price is
accurate.1m
 Inspect the asset registration card to verify the ownership of the new recycling
vehicles.1m
 Physically inspect the newly added vehicles to confirm its existence.1m
 Inspect the NCA register to confirm the disposal of the old vehicles and the exchange
of the new vehicles.1m
 Inspect the breakdown of the disposal, recalculate the total of the list and agree that
old vehicles has been removed from the NCA register to confirm existence.1m
 Inspect the board minutes of meeting to ensure that significant capital expenditure
has been authorised by the Board of Directors.
 Recalculate any loss on disposal of $1.1m and agree to SOPL to confirm accuracy.
(Calculate the profit or loss on the disposal)

(b) SP Receivables – Valuation

 Compare current receivables turnover days with prior year turnover days and
investigate any significant differences. 1m
 Inspect trade receivable aging report to identify slow paying customers for the
purpose of allowance for receivable to confirm valuation and allocation. 1m
 Enquire the management on the basis of calculation allowance for receivable,
recalculate allowance for receivable to confirm valuation. 1m
 Review the adequacy of the allowance for receivables through discussion with
management and the review of correspondence from customers. 1m
 Compare the receivables amount for the current and prior year and investigate any
significant differences. 1m
 Inspect board minutes to confirm discussions regarding the significant differences
of receivable figure to confirm the valuation exists. 1m
 Inspect year end bank statements and confirm the payment was from customers
that would indicate provisions of doubtful debt is not necessary.1m

(c) SP Potential breach of transport regulations

 Inspect court order to confirm whether the present obligation exist. 1m
 Inspect the board minutes of meetings to confirm discussion on the potential of
breaching the transport regulation for the purpose of present obligation. 1m
 Obtain a written representation letter from the management to confirm the
probability of economic benefit outflow from the company. 1m
 Review the policy and procedure regarding the maximum driving hours and the
compulsory rest break and compare to the regulation to see if there is breach of
regulation.
 Enquire the director on the reasons of not providing disclosure of the potential
breach of transport and assess reasonableness.
  Inspect cash flow statement to confirm whether outflow reliably estimated or not.
1m.
 If no,inspect disclosure notes to confirm contingent liability has been recognised.

d) Impact on auditor report

+.Discuss issue 1-2m

-Start to write answer by mention type of report(modified or unmodified report)

-If the matters is unresolved,there must be FSCMM or AUTOSAE

STEPS:

1.Calculate materiality-1m

2.FSCMM or AUTOSAE-1/2m

3.M +P or MXP 1/2m

+.Impact to audit report 1/2m

4Name of opinion 1/2 m

+. Explain further on the opinion 1/2m

5. Basis of opinion paragraph 1m

Additional to get 5 marks

1-5:COMPULSORY