Question

You are conducting the audit of Computer World Ltd for the year ended 30 June 2018 and are reviewing the audit working papers for property, plant and equipment (PPE) prepared by your audit assistant Megan Cartwright. Megan tested the PPE additions and disposals during the year and recalculated the depreciation. No discrepancies were found in the testing. As a result, Megan concluded PPE, which is a material balance, was appropriately valued.

REQUIRED

(a) Explain whether the audit team member has arrived at an appropriate conclusion.

(b) Describe how your conclusion for part (a) will impact upon the further conduct of the audit (if at all).

Answer 1

a)

Megan's audit procedures on the PPE is correct but inadequate. She should have conducted further verification of PPE such as Physical verification of the PPE to confirm its existence, should have checked the valuation methods of the assets adopted by the management. Therefore, Megan was required to conduct the verification of PPE from all the angles.

b)

Further audits may be carried on by another auditor. He may adopt the work done by the previous auditors to form an opinion in the current year. This can lead to an inappropriate opinion of the financial statements by the current auditor