ACCA F8 - Audit and Assurance Revision Kit 2016

Expert
72 C IAS 16 permits non-current assets to be revalued. However, if an item of property, plant and
equipment is revalued, the entire class of property, plant and equipment to which that asset belongs
must be revalued. Truse Co is therefore entitled to revalue the shop, but they will also need to revalue
all of the other shops if it is to comply with IAS 16.
The revaluation does constitute a change of accounting policy, so disclosures do need to be reviewed.
Under IAS 16, all non-current assets used by the entity should be depreciated, even if the fair value is
in excess of the carrying amount. Repair and maintenance does not negate the need to depreciate the
shop over its useful life.
Repairs and maintenance costs should be expensed as incurred, not capitalised.
73 B Existence, classification and presentation are all assertions related to tangible non-current assets.
Completeness and accuracy, valuation and allocation are also relevant assertions. Occurrence relates
to classes of transactions and events recorded in profit or loss.
74 A Physically inspecting assets listed in the non-current assets register tests for existence. Recalculating
net book values tests for accuracy, valuation and allocation. Inspecting relevant purchase invoices or
deeds tests for rights and obligations.
75 D The existence of threats to the expert’s objectivity should be considered as part of determining the
competence, capability and objectivity of the auditor’s expert (ISA 620, paragraph 9). However, it is
not a matter to be considered when the auditor determines the overall nature, timing and extent of the
audit procedures required to evaluate the auditor’s expert and the auditor’s expert’s work.
Besides the three matters listed in A, B and C, the auditor should also consider the nature of the
matter to which the auditor’s expert’s work relates (ie the nature of Truse Co’s properties) and the
significance of the auditor’s expert’s work in the context of the audit (this depends, in part, on the
materiality of the property account).
76 D Third party evidence is the most reliable, followed by auditor-generated evidence. Client-generated
evidence is deemed to be less reliable – more so when the evidence is verbal.
Newthorpe
77 The correct answers are:
The auditor observes client staff to determine whether inventory count procedures are being followed.
The auditor reviews procedures for identifying damaged, obsolete and slow-moving inventory.
Management is responsible for organising the inventory count, not the auditor. If the results of the auditor's
test counts are not satisfactory, the auditor can request that inventory is recounted, but the auditor cannot
insist on a recount. However, if management refuses the auditor's request then the auditor will need to
consider the implications of this on the auditor’s report.
78 The correct answers are:
Agree the selling prices of inventories sold since the year-end to sales invoices and the cash book.
Assess the reasonableness of management’s point estimates of realisable value of inventories that has not
yet been sold by reviewing sales before the year-end, comparing the values with inventories that has been
sold since the year-end and considering offers made which have not yet been finalised.
For unsold inventor, assess reasonableness of provisions for selling expenses by comparison of selling
expenses with inventory sold.
All of the suggested audit procedures test the valuation assumption, except for matching the dates of sales
invoices with the dates on the related goods despatched notes, which is an audit procedure around cut-off.
136 Answers