Your firm is auditing the financial statements of Newthorpe
Manufacturing Ltd. for the year ended June 30, 2020. You have been
assigned to the audit of the company’s property, plant, and
equipment, which includes freehold land and buildings, plant and
machinery, fixtures and fittings, and motor vehicles.
The freehold land and buildings were purchased 12 years earlier (in
July 2008) for $2 million. At the date of purchase, a valuator
estimated that the land and the buildings each had a value of $1
million. Depreciation has been charged since 2020 on the buildings
at 2 percent per year on cost. At June 30,2020, the accumulated
depreciation is $200,000 before the revaluation.
A qualified valuator, who is not an employee of the company, valued
the land and buildings at $5 million ($2.9 million for the land and
$2.1 million for the buildings). These values will be incorporated
into the financial statements as at June 30, 2020.
The partner in charge of the audit is concerned at the large
increase in the value of the land and buildings since they were
purchased. She has asked you to check the reliability and accuracy
of the valuation. She suggested that CAS 620 Using the Work of
an Auditor’s Expert could help you in carrying out this
work.
In addition, you have been asked to verify the existence and
completeness of plant and machinery recorded in the company’s
computerized non-current asset register, which records the
description of each non-current asset, the original cost, the
depreciation charge, and the accumulated depreciation.
What will the auditor consider when evaluating the work of the
qualified valuator?
Professional competence of the expert
Objectivity of the expert
Scope of expert’s work
Expert’s certification and education
Expert’s marital and family status
Appropriateness of expert’s work
Experience and reputation of the expert
Assessing Qualified Valuators Work
In order to check the reliability and accuracy of work of qualified valuator same parameters have to be adopted that are used for "Auditor's Expert".These parameters are :
Competence – relates to the nature and level of expertise of the expert. Clearly, any expert employed should have widespread recognition of their expertise in the stated discipline. •
Capability – relates to the expert’s ability to exercise that competence in the circumstance of the audit engagement. For example, the expert must have the time and resources available to perform the task in hand. •
Objectivity – relates to the possible effects that bias, conflict of interest or the influence of others may have on the judgment of the expert. If an expert has a vested interest in expressing anything other than objective opinion with regard to the subject matter, then their opinion will be of no value to the auditor.
In order to assess the above following informations can be sought:
The findings of the qualified auditor can be cross validated by adopting following procedures :
Computerized Non Current Asset Data Verification:
Following steps should be adopted :
Extract the Data:
To commence the auditing process, auditors must first retrieve the data stored in the computer. Documents such as sales receipts and supplies invoices to be used for verifying the data entered into the computer.
Compliance Test:
Verify that procedures followed when entering data into the data processing system are being applied as prescribed.This will act as the underlying evidence of whether the accounting data is correctly fed into the processing system.Obtaining this evidence involves reviewing the accounting journals, ledgers and worksheets. Compliance tests, which are tests used to verify the correct functioning of internal controls, are then carried out to indicate whether such internal controls are working properly. This provides the auditor with the overall picture of the truthfulness of data entered in the processing system.
Substantive Test
Here a sample of the assets need to be selected and cross checked physically.This will ensure that no bogus assets are there in the books meaning such assets which in reality are not tracebale or donot exist.
Your firm is auditing the financial statements of Newthorpe Manufacturing Ltd. for the year ended June...
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