Question

A. You are the senior responsible for the audit of KKK Limited which has a 30 June balance date. The company's inventory consists of approximately 20,000 music cassettes and compact discs, details of which are maintained on a perpetual IT inventory system. Inventory is counted on a cyclical basis throughout the year with all items being counted at least once during the year. The stocktakes are attended by an audit assistant where a sample of 20 items is counted from the floor and checked to stocktake sheets and perpetual records, and a further sample of 20 is selected from the perpetual records for checking to the floor. The most recent stocktake took place in March. The client's inventory system was not subsequently updated for several errors identified at the time of the stocktake. The audit assistant has concluded that, as these errors occurred in the March inventory counts, no further work is considered necessary. B. Property, plant and equipment is depreciated at the flat rate of 15% p.a. on cost. As such, it was considered appropriate to test the accuracy of the depreciation expense using substantive analytical procedures. The work paper supporting this audit procedure contained the following information: Property, plant and equipment = Opening cost value + Closing cost value X 15%$|| 2. = 46,209,576 +51,674,973 X 15 2 100 = $7,341,341 is the calculated depreciation expense The balance of depreciation expense per the client records is $6,076,555. The audit assistant has concluded that the balance of the depreciation expense for the year is reasonable. Required: You are the audit senior and have been presented with the above information by the audit assistant. Comment on whether or not you agree with the audit assistant's conclusions, giving reasons and the appropriate additional action you would take.

Answer 1

Situation	Agree or nOt	Expanatin
A	Agreed with the test conducted, but not agreed on no further steps is requried further to substantate the same.	Here, in the scenario, as per the sample tested total 40 samples are tetsed, as sample from floor 20 and from perpetual record. As these 40 items are showing the variances in their record keeping, So, as the inventory is mismatched further works like same is required to be calculated backwards from sale and purchase during the month matches with the inventory records or not, if it matches it means error must not be in monthof march but in other month, inorder to identify the same has been done on monthly basis.
B	No Agreed at all.	Here, as per IFRS depreciation can never be calculated on Avergae value of asset at any point of time same has been calculated on the carrying value balnce at every year end as per the rate specified in accounting rulesa nd standards and schedule. Rate is appropriate but depreciation method is wrong. Secondly how the closing value will be higher in average formaule , it means new assets has been purchased during the year. so accordingly same shall be reocrded separately. and depreciation shall be applied accordingly. Same is required to be valued from the