Tickitt & Run are auditors of the Zombrit Group PLC. The accounts for the year ending 31.12..20x7 are being subjected to the final review. The following matters have been noted by the audit manager:

a. The company has engaged in a number of long-term contracts in the Far East. During the last few years a minority of these have sustained losses. Work in progress at 31.12.20x7 includes a substantial amount of these contracts. Some are valued at cost and some include attributable profit. One contract has been valued with a provision for ultimate loss.

b. The group has set up a subsidiary in Africa to manufacture motor parts for sale in that country. The group have lent this subsidiary material amounts but so far production difficulties, political problems and difficulties in finding adequate markets have plagued the project. All assets acquired by the subsidiary have been valued at cost.

c. The group have a property in Milton Keynes which they used as the regional headquarters.

This office has been closed and the staff transferred, with considerable opposition, to London, The property has been let to another company on a two year lease and has been treated in the accounts as an investment property.

d. The company have a project to manufacture and sell a range of video conferencing equipment as a package. Production should commence in 20-7, All expenditure so far has been treated as development costs as although prototype packs have been assembled they are not yet in production.

Discussion Question

1. Identify the matters connected with these items which the auditor may include in a letter of representation.