Hardware Manufacturing Company Limited, a closely held corporation, has operated since 1994 but has not had its financial statements audited. The company now plans to issue additional share capital to be sold to outsiders and wishes to engage you to examine its 2011 transactions and render an opinion on the financial statements for the year ended December 31, 2011.
The company has expanded from one plant to three and has frequently acquired, modified, and disposed of all types of equipment. Capital assets have a net book value of 70 percent of total assets and consist of land and buildings, diversified machinery and equipment, and furniture and fixtures. Some property was acquired by donation from shareholders.
Amortization was recorded by several methods using various estimated lives.
Required
a. Should you confine your examination solely to 2011 transactions as requested by this prospective client whose financial statements have not previously been examined? Why or why not?
b. Prepare an audit program for the January 1, 2011, opening balances of the land, building, and equipment asset and accumulated amortization accounts of Hardware Manufacturing Company Limited, organized by audit objective.