Audit Evidences

Matty Co

Railway Operating Licence

A review of press reports regarding the late running of Matty Co's trains and the quality of its
service to assess the seriousness and significance of the issue.
A review of correspondence files between Matty and the government to identify any
developments in the licence renewal process and consider their impact on the likely renewal
of the licence.
Notes of discussions held between the auditor and the management of Matty in relation to
contingency plans if the company fails to secure the railway licence.
A review of company's board minutes for evidence of management discussion of the status of
the tender process and of any contingency plans.
A review and analysis of budgets and cash flow forecasts by the auditor in order to assess
the ability of the company to survive as a going concern for the foreseeable future.
Copies of the company's bank facilities reviewed to assess the feasibility of the company's
ability to operate within them should they be unsuccessful in winning the contract.
Written representations from management in relation to the status of the tender process and
management's expectations of its expected outcome.

Purchased Customer List

A copy of purchase agreement to identify the details of acquisition including the purchase
consideration, assets acquired and the date.
Agreement of the purchase consideration of $6.9 million to the company's bank ledger/cash
book and bank statement to confirm purchase price.
A copy of client's schedule of calculating the value in use of the purchased customer list as
$7.2 million and a confirmation of the schedule's accuracy.
A review and assessment of the company's cash flow forecast which has been used to
support the value in use of $7.2 million agreed to the value in use calculation.
A discussion with management in relation to the basis of the calculation of value in use and
an assessment by the auditor of the reasonableness of management's key assumptions.
A sensitivity analysis performed by the auditor varrying these assumptions and an
assessment of the materiality along the potential impact on calculations.
A review of Matty's management accounts for the reporting period and for the post reporting
date period to date in order to identify and quanitfy the cash flows generated by the customer
list and any significant variances investigated.
A comparison of discount rate used in the value in use calculation to published market rates
and notes of discussions with managment to ensure appropriate rate is used.

Lifeson

Sale and Leaseback Transaction

A copy of sale and leaseback agreement reviewed to confirm key details specifically the
rights of lessee and the lessor to control the asset.
Agreement of sale proceeds as per the agreement to bank ledger/cash book and bank
statement to confirm the correct calculation of the gain or loss on disposal.
Notes of discussion with management in relation to the transfer of control to confirm whether
the correct treatment of the sale and leaseback arangement has been determined.
A review of board minutes for evidence of management's discussion of the sale and
leaseback transaction and any evidence with regards to transfer of control.
 A review of local property market including trade journals, press articles, official statistics to
confirm high demand for retail leases.
A review of surveyor reports on the property to confirm the expected remaining life of the
property.
A copy of the client's working papers for calculation of present value of lease payments and a
recalculation of present value of the lease payments and a recalculation of present value by
the auditor to confirm detailed accounting treatment adequacy.
A schedule carrying any gain or loss on the transaction recalculated by the audit team and
confirming that it represents the gain or loss on rights transferred to Clive Co.

Asset Impairment

Agreement of the opening balances for the property to the non current asset register as at 1
April 20X4 to confirm correct amount has been brought forward in the client's working
papers.
Physical inspection of the shopping mall property to confirm its condition to assess
reasonableness of depreciation policy and forecast cash flows for value in use calculation.
Copy of client working papers for impairment review giving evidence of client's basis for
assessing the fair value less selling costs of the mall and detailed calculations of its value in
use.
Copy of client's cash flow forecasts and budgets supporting the value in use calculations.
Notes of discussions with management in relation to the basis for the calculation of
recoverable amount including assessment of reasonableness of the assumptions used by
management.
Written representations attesting to reasonableness of its assumptions and other related
management judgements.
A recalculation of the value in use of the shopping mall by the auditor in order to confirm the
accuracy of the client's calculation.
Sensitivity analysis on the forcasts and the value in use calculations in order to assess the
impact of any changes in the key assumptions.
Notes of discussions with management in relation to the incorrect recording of impairment
reversal and the need to include the error in the auditor's schedule of uncorrected
misstatements.

Brearly & Co

Dilley Co

A copy of the legal documents supporting the acquisition of the shares and the options
including the voting rights and the terms of exercise for the options.
A review of the audit working papers for Dilley Co including details of the issued share capital
and the associated voting rights attached to shares.
The group board minutes relating to the acquisition and the intentions of management in
relation to Dilley Co.
Written representations from management on the degree of influence exercised over Dilley
Co and the future intention of management in relation to the share options.

Willis Co

Details of the fair value of the options based on prices derived from an active market or if this
is not available an independent expert valuation.
Audit documentation of the review of derivative contracts and confirmation of the terms and
maturity dates.
Notes of a discussion with management in relation to the basis of their valuation and the
accounting treatment required in the consolidated financial statements.
Osier
Cost of Inventory

Documentation of the system for obtaining data used in costing exercise and calculating the
final cost.
A copy of summary of inventory purchase costs, a sample of purchase costs including
additional costs should have been confirmed through inspection of original purchase invoices
copies of which should also be on file.
Documentation of the results of a discussion with the production manager to ascertain how
they estimate the average production time per unit of inventory.
A copy of the calculation of the forecast annual wage cost, initial staff levels should have
been confirmed through inspection of current human resource records and for a sample of
the staff their initial wages should have been confirmed through inspection of payroll records.
Forecast wage increments should have been agreed to either post year end confirmation
issued by human resources or minutes of board meeting approving pay rises.
Documentation of results of discussions with management regarding how the forecast is
made and who is responsible for reviewing the approved forecast.

Impairment

Documentations of enquiries with management with regards to how they estimated the
disposal costs and what experience they have had with the sale of similar operations.
A copy of the forecast cash flows attributable to the retail outlets, this should contain evidence
of analytical review in comparison to the year end 31 March 20X5 to confirm the accuracy of
the base cash flows.
Evidene of a recalculation of the future cash flows using mangement's estimates of 1%
growth to confirm the mathematical accuracy of management's calculation.
Evidence of recalculation of value in use using a range of growth rates to assess the
sensitivity of management's calculations to economic variables.
Documentation of enquiries with management relating to their expectations for specific retail
outlets or areas of operations and whether there are any specefic matters which they are
aware of which may affect regional performance.
A recalculation of the allocation of the impairment by the auditor, firstly against any goodwill
determined to be attributable to the cash generating unit then against the remaining assets
pro rata.

Goodman Group

Development Cost 

A discussion with the project manager to obtain their view on the likely launch date for the
new product anticipated level of demand any problems foreseen with completion of the
project.
Further review of a sample of the costs included in the $600,000 including evaluation of
whether the costs are capital or revenue in nature.
For a sample of costs review purchase invoices and ensure they are in the name of the
company to confirm the rights and obligations assertion of the capitalised costs.
Results of any market research to support the assertion that the new product will generate
future economic benefit.
A discussion with management to identify how they have incurred development costs without
carrying out any research first.
Adder Group
Sale and Leaseback

A copy of the lease signed by the buyer and review of its major clauses to confirm that control
of the asset remains with the group.
Review of forecasts and budgets to confirm that economic benefit is expected to be
generated through the continued use of the property complex.
Agreement of the $35 million cash proceeds to the bank statements and bank ledger/cash
book.
Physical inspection of the property complex to confirm that it is being used by the group.
Confirmation of the fair value of the property complex possibly using an auditor's expert in
which case the expert's report should be included in the audit working papers.
Minutes of discussion with management regarding the accounting treatment and including
auditor's request to amend the financial statements.
A copy of insurance documents stating that the group is responsible for insuring the property
complex.

Baldrick Co (Associate/Subsidiary)

Agreement of cash paid to acquire Baldrick to the bank ledger account/cash book and bank
statements.
Review of board minutes for discussions of the change in group struction and for
authorisation of acquisition.
Review of legal documentation pertaining the acquisition of Baldrick Co to confirm the
number of equity shares acquired and the rights attached to the shareholding.
Inspection of other supporting documentation relating to acquisition such as due diligence
reports.
Notes of discussions with management regarding the exercise of control over Baldrick Co.
Review of forecasts and budgets to assess the plans for integrating Baldrick Co into the
group.
Evaluation and recalculation of amounts recognised in group equity in respect of Baldrick Co
in particular determination of pre and post acquisition results.

Francis Group

Goodwill

Agreement of the purchase consideration to the legal documentation pertaining to the

acquisition and a review of the documents to ensure that the figures included in the goodwill
calculation are complete.
Agreement of the $75 million to the bank statement and bank ledger account/cash book of
the acquiring company.
Review of board minutes for discussions relating to the acquisition and for the relevant minute
of board approval.
A review of purchase documentation and a register of significant shareholders of Teapot to
confirm the 20% non-controlling interest.
A copy of any due diligence report relevant to the acquisition reviewed for confirmation of
acquired assets and liabilities and their fair values.
Review of depreciation calculations and recalculation to confirm that additional depreciation is
being charged on the fair value uplift.
A review of the calculation of net assets acquired to confirm that group accounting policies
have been applied.
Impairment

Discussion with management regarding the potential impairment of group assets and
confirmation as to whether an impairment review has been performed.
A copy of any impairment review performed by management with scrutiny of assumptions
used and reperformance of calculations.
Auditor's impairment evaluation and calculations compared with that of management.

Property Complex

A copy of any press release made by group after the natural disaster focusing on its impact
on property complex.
Photographic evidence of the site after the natural disaster and of the demolished site.
A copy of the note to the financial statements describing the event reviewed for completeness
and accuracy.
A schedule showing the value of inventories and items such as fixtures and fittings at the time
of disaster and confirmation that this is included in the costs described in the note to financial
statements.
A copy of insurance claim and correspondence with the group's insurers to confirm that the
property is insured.
Confirmation that an adjustment has been made to reverse out the contingent asset and
deferred income which has been recognised.

Daley

Cash Flow Forecast

Evidence of agreement of the opening cash position to the bank ledger account/cash book
and bank reconciliation.
Reperformance by the audit team of the client's calculations in preparing the forecast in order
to check its arthmetical accuracy.
Notes from meetings with management detailing discussion of the key assumptions made by
management in the preparation of the forecast and an assessment of the consistency of
those assumptions.
Evaluation by audit team of the previous profit and other financial forecasts and their outcome
in order to assess the consistency of the cash flow forecast with other prospective information
prepared by the management.
A comparison of the cash flow forecast with the management accounts for the same period to
assess the accuracy of the forecast compared to actual data to date.
Results of analytical review of the items included in the cash flow forecast.
A review of correspondence with Daley Co's lawyers in relation to the legal claims in order to
assess the likelihood of losing the actions.
A review of correspondence with Daley Co's bankers and supporting documentation for both
the company's existing loan facilities and the proposed new loan.
Minutes of discussions with management in relation to the likelihood of obtaining the new
loan.
A review of board minutes in relation to the company's current trading position and the
ongoing negotiations for the proposed new bank finance.