Question

California Finance Firm (CFF) is an integrated lumber company operating in Ontario and Quebec. Total sales in 2020 were $825,000,000. Due to high duties imposed on exports to the United States, CFF expects to lose a quarter of its sales for the next five years. In the face of this, CFF has “temporarily” shut one of its sawmills. The sawmill was built in 2007 at a cost of $250,000,000. At the time, it was estimated to have a 25-year life. CFF uses straight-line depreciation and has estimated that salvage value less remediation costs will be zero. They have argued that by shutting down the plant for five years they do not need to depreciate it since it is not being used. Required

State what type of audit report should be issued. Briefly explain your rationale.

Answer 1

Ans: Qualified Audit Report

In the given case Financial statement have not been prepared as financial reporting standards. Depreciation is charged on capital assets for wear and tear. Under IFRS, depreciation have to be charged on Plant & Machinary even if they are not put to use.

If effect of such non provision is material auditor shall Qualify his audit report, by saying except for the depreciation on Shawmill financial statement gives true & Fair View.