Auditing and Assurance Services T119

AUDITING AND
ASSURANCE SERVICES -
T119
[DATE]
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Table of Contents
Question 2...................................................................................................................................................1
Question 4...................................................................................................................................................2
Question 5...................................................................................................................................................3
Question 6...................................................................................................................................................3
References...................................................................................................................................................4

Question 2
As per Australian Accounting Standard AUSB 102 “Inventory”, the valuation of inventory shall be done
on the basis of lower of net realizable value or cost. Moreover, the auditor is needed to procure audit
evidences which are sufficient and appropriate regarding to its order and existence where the inventory
have materiality by physical verification (Alexander, 2016). According to Australian Auditing Standard
506 “Existence and Valuation of Inventory” the inventory is to be valued at cost or net realizable value,
whichever amount is lower. The auditor is required to evaluate the bases being used by the
management for the purpose of valuation of inventory. The auditor is required to perform various audit
procedures which are designed to acquire sufficient and appropriate audit evidences used in the
inventory valuation. The auditor should also perform various procedures to test the lower of both, the
cost price and the net realizable value based on the documents available for the determination of the
same. The invoices, cost records and other inventory records as well as relevant documents along with
the inventory sheets should be tested and verified by the auditor. The principle of computation of the
amounts along with the consistency of the application of the principles with which the amounts have
been computed is also required to be checked in order to ensure that the valuation of the inventory in
the books is accurate.
In the given case, the retailer has provided a valuation of inventory at sales price less an allowance of
sales margin (Dichev, 2017). Also it is mentioned that the inventory is material and so the auditor should
perform tests and obtain various audit evidences which are appropriate as well as sufficient. The
valuation done and provided by the retailer is incorrect. From the above discussion of the Australian
Auditing Standard 506 “Existence and Valuation of Inventory” we know that the valuation of inventory
should be done at the lower of cost price or the net realizable value, which is not being done in the
given situation. The auditor should bring the same to the notice of the management and the auditor is
also required to state the same in the audit report. As per the audit opinion, valuation of the inventory
done by the retailer is incorrect as per the auditing and accounting standards and does not reflect a true
or fair view of the value of the inventory which is shown in the financial statements (Linden & Freeman,
2017).
Question 4
As per the Australian Accounting Standard Board, AASB 116 “Property, plant and equipment”, any
property, plant or equipment from which any future economic benefit can be derived is required to be
recognized and measured at cost price only. Any inconsistency with the same will be considered as
incorrect. Buildings comes under property, plant and equipment and should thus be measured on the
basis of AASB 116 (Das, 2017). This reflects the true and correct amount of investment of the entity in
the property, plant and equipment and provide correct information to the investors. In general the
recognition of plant, property and equipment is done as an asset if the measurement of the cost can be
done reliably and it is certain that future economic benefit connected with them will pass to the
organization. It is considered that Building is an asset, the future economic benefit of which will move to
the company.
In the given case, The Croucher Company has been under the practice of valuing the building on fair
value method (Visinescu, et al., 2017). The value at which the building is been shown in the balance
sheet is $ 18.5 m which the current market value of the building. However, the cost at which the
building was originally acquired is $ 12 million. This is very clear from the information provided that the