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A) In our given case, the three particular items being accounted for are Las Vegas Group Corporation’s
land, inventory accounting policy and factory reorganization. The key issue in auditing is ensuring that the
inventory with that of property, plant and equipment existence, value and ownership are properly
accounted for with adequate provision for depreciation for given non-current assets ((Leung, Coram,
Cooper, Richardson, pg 672, 2011)). The major key in such case is that of value reconsideration regarding
the following three items. The validating motive behind such new recognition is to properly account for
the values for mentioned items accordingly. The proper valuation of the three items are closely related
with that of materiality that is defined as “… information which if omitted, misstated or not disclosed has
the potential to adversely affect decisions about the allocation of scarce resources made by users of the
financial report or the discharge of accountability by the management, including body of the entity” (Gill,
Cosserat, Leung, Cora, pg 244, 1999). In other words, those valuation were material hence the importance
of its proper valuation for this entity.
The determination of materiality depends upon a company business context. Each are different in terms of
materiality but all follows the idea of a baseline. A baseline is a benchmarking amount that which
determines the materiality level for different accounts within different financial statements (Gill, Cosserat,
Leung, Cora, pg 246, 1999). In a balance sheet an appropriate liability or asset or equity is used, in profit
and loss an operating profit or average profit or profit after tax is used and in a cash flows a net cash
provided by operating or financing or investing may be used as appropriate as a baseline (Gill, Cosserat,
Leung, Cora, pg 246, 1999). Generally auditors usually used the following as their evaluation basis for
materiality such as:
Base Materiality threshold %
Gross profit 2.0
Profit before tax 5.0
Total assets 0.1
Equity 1.0
(Source: Whittington, Pany, pg 201, 2012)
Using the above materiality threshold, it is concluded that the minimum materiality level this company on
it total asset is $40,000 for the year 1997. From the $4 million of total asset, $2 million of it include
current asset. Hence the non-current asset total value is $2 million and current asset is $2 million. Thus the
materiality benchmark for $20,000 for both the current asset and non-current asset. From the given
amounts for both the land revaluation with total value of $150,000 and that of factory reorganization with
a total value of $128,000 , it could be concluded that such amount are material hence why the director
adjusted accordingly the values for these two accounts.
Inventory maximum year of consumption had been increased from 2 years to 3 years. This occurred as the
director found the previous financial statement lack the validation to firmly conclude the net realizable
value to be less than it current recorded cost. This implies that there is an issue with in the inventory
valuation and thus the directors further increase their inventory maximum year of consumption to 3 years
in a high hope to get an accurate net realizable value for their 3 years used inventories. Given the
manufacturing nature of such company, the inventories with its cost of goods sold have significant impact
toward both the reported financial position (Gill, Cosserat, Leung, Cora, pg 539, 1999). Hence why it is
crucial for the director to get a specific and accurate valuation for their current inventories for their three
year span of operation.
Further disclosures should be made in order to further improve the quality of the current financial
statement to reach an unqualified audit opinion. In terms of inventory the following disclosures should be
made annually according to IAS 2 under its disclosure section:
 The identification with categorization of inventory with their different assigned costing methods
 The pledging of inventories with the existence of significant purchase commitments
 The existence of binding contracts for future purchases of goods
 The accounting policies used in inventories measurement with cost formula
 Total carrying amount of current assets according to their classifications
 Inventories carrying amount carried at fair value less costs to sell
 Inventories write-down amounts recognized as expense in a particular accounting period
 Any write-down reversal amounts recognized in its amount of inventory recognized as an expense
 Events that result in write-down of inventories
 Pledged inventories as security for loan carrying amounts.
In terms of property, plant and equipment valued at cost the following disclosures should be made
annually according to IAS 16 under its disclosure section:
 The deprecation methods used with the depreciation expenses
 The book value for each class of property, plant and equipment.
 Pledged property as security for loans
 The depreciation rate or its useful lives
 The restriction on title with property, plant and equipment pledged as a liabilities security amount
and existence
 Contractual commitments for the acquisition of non-current assets amounts
 The compensation amount from third parties for non-current assets that were damaged, given up or
lost included in Performance Statement that is not disclosed in a statement of comprehensive
 Disclose the capitalization of the costs regarding senior personnel and engineering design
And for other property, plant and equipment valued other than cost the following disclosures should be
made annually:
 The basis of valuation with its current year
 Either the valuation is that of a directors’ or independent valuation
 The name of the valuer for non-current assets valued in a current year
B) The previous disclosures made for both the inventory and non-current assets are all derived on the basis
on the going concern. The basis of going concern assumes that a company will continue to operate for
infinity. However if the company is about to liquidate then the disclosures for both the inventory and non-
current assets will be then different to suit a business situation. In this specific case where the company is
going to liquidate, then it is required that a company is to disclose its uncertainties and the reason why it
prepare it financial statements without the going concern assumption (IAS 1, pg 24, 2003). In our case the
possible disclosure to be made is that the maximum loan covenant has been reached hence the company
will have to be liquate to account for its liabilities. Thus it is highly reasonable that the disclosures
regarding the inventories will be that of its net realizer value and the carrying amount of non-current assets
in a hopeful attempt to repay its existing debts (ISA 570, pg 559, 2012). The type of audit report to be
issued it that of basis of qualified audit opinion on the audited report that states :

(source ISA 570, pg 559, 2012).

The payable date is adjustable which can be inserted the correct date of a company’s liquidation.
Otherwise, the disclosures will be the same as in the previous response that is derived on the basis of
going concern assumption.

C) According to IAS 16, examples of investment on property include:

 Land held for long-term capital appreciation and currently undetermined for future use.
 An entity owned building or that of held under finance lease.
 Property currently constructed for future investment purposes.
The amounts of investment in property and plant represent a significant portion of total assets. One
specific effect of overstatement of such accounts is that of overstating major expenses related.
Depreciation, maintenance and rearrangement are the major expenses related that overall can impact the
eventual net profit (Principles of auditing and other assurance services, pg 537). Additionally the total
asset will then be overstated by $2 million by increased by the investment on property holding. Thus the
overstatement of $2 million for investment in property results in a significant increase of total expense and
total assets.
The general overall effects of the misstatement in a form of an error in valuation causes the audited
financial statement to misaligned with that of relevant Accounting Standards. The error recorded results in
misapplication of Accounting Standards, differs from actual financial facts and possible omissions of
relevant information (Gill, Cosserat, Leung, Cora, pg 277, 1999). With this lack of error it could lead to a
qualified audit opinion due to the lack of coherence of accounting standards in this audited financial
statements. In our current case, the overstatement of $2 million demonstrates the variance of actual
financial facts. This overstatement should be adjusted accordingly to the valuation of investment on
property at hand to prevent the occurrence of overstatement or that of understatement. Hence most likely
the audited financial report will result in a qualified audit opinion if this amount is material within this
company financial report level.
From the context of this business, the materiality level is $5 million for its investment on property holding.
The overstatement of $2 million then is deemed to be immaterial as it is below $5 million. Since this
overstatement is not material then it is implied that such amount is insignificant that it will not affect
decisions made regarding the allocation of scarce resources. Thus the issued audited statement will be an
unqualified one or that which represent faithfully the performance of an audited financial statement.
 Audit of historical financial information
The main objective of an auditor is to provide assurance on its client financial statements. This
assurance is usually presented in a form of an auditor opinion that can be either unqualified (fairly
represented and comply with accounting standards) or that it can be qualified (do not faithfully
represent and comply with accounting standards). There are also two different types of audit that
are known as statutory audit that is necessary to be mandated with certain regulation and non-
statutory audit is an audit does not require any regulation but is carried out on the demand of
certain clients (Whittington, Pany, pg 100, 2012). Statutory audits operate within a set time frame
which auditors must be aware of whereas non-statutory audits is less restricted in terms of timing
(Whittington, Pany, pg 100, 2012). An assurance gives auditors’ clients the confidence in their
audited financial statements as either reliable or not that is must be consistent with other

 To conduct the audit with due professional care and competence

The auditors are legally complied to perform their roles with professional care and competence.
This implies that auditors should be independent, honest, competence and use reasonable care with
skill. The International Standards of Auditing (ISA) list many standards by which registered
auditors have to conform with. Among the many areas which require professional skill and care is
ISA 570. The sole purpose behind this standard is to make confirm validation audited financial
report with the consistent support of other information. Other information are financial and non-
financial data that are not included in the audited financial statement (IAASB Handbook, 2017, pg
744). In such cases, auditors will face with inconsistencies and certain amounts which materiality
will then have to be professionally judged by auditors. In most cases auditors make a thorough
assessment on this other information to properly pinpoint any inconsistencies overstatements and
understatements within an audit financial statement.

 Preparation of the management letter

The management letter is the very last thing auditors do and issue to their client. The purpose
behind this letter is that it provide recommendations on the effectiveness and efficiency of the
matters noticed during the course of an audit (Gill, Cosserat, Leung, Cora, pg 630, 1999). It
focuses on their client current operations as in manufacturing, service, human resource
management, accounting system, governance with their internal controls for their respective
operation sections (Gill, Cosserat, Leung, Cora, pg 630, 1999). The intent behind this letter is to
pinpoint existing weaknesses of a client current operation system and possible ways for
improvements or that current leading senior management devise their own solutions for improving
their current operation system (Gill, Cosserat, Leung, Cora, pg 630, 1999). The implication of this
letter is that it shows professional auditors concern and interest in their client future success that
creates favorable impression for both parties.

 Gill. G, Cosserat. G, Leung. P, Cora. P, 1999, “Modern Auditing 5th Edition”, John Wiley & Sons
Australia Ltd, Australia.
 International accounting Standards Board, 1997, International Accounting Standards, IFRS
Foundation, New York.
 International Auditing and Assurance Standards Board, 2012, "Handbook of International Quality
Control, Auditing Review, Other Assurance, and Related Service Pronouncements", International
Federation of Accountants, New York.
 Leung. P, Coram. P, Cooper. B, Richardson. P, 2001, “Modern Auditing”, John Wiley & Sons
Australia Ltd, Australia.
 Puttick, G. Esch. S, Kana. S, 2007, “The Principles and Practice of Auditing”, Juta & Co. Ltd,
South Africa.
 Whittington. R, Pany. K, 2012, “Principles of auditing and other assurance services”, McGraw-
Hill Irwin, New York.