Audit evidence and quality You are planning the audit of Big Digger Ltd (BD), a company which manufactures gardening equipment. Included in the balance sheet of BD, under non-current assets, is an investment in another company, Get Potted Ltd (GP), which makes garden pots. BD owns 12% of the shares of GP which are valued in BD's balance sheet at the original cost of $125,000.

From your work to gain an understanding of the entity and its environment, you have become aware of a rumour that GP is having financial difficulties and that a recent press report stated that GP was insolvent and had ceased to trade. You are about to start the audit of the investment in GP and have identified that the financial statement assertion at risk with regard to the investment is that of valuation and allocation.

Required

Considering the broad categories of types of auditing procedures below, give examples, where applicable, of specific audit procedures that could be undertaken with regard to the valuation of the investment and discuss the reliability of the evidence received from those procedures. Note that not all the categories below are applicable to this scenario.

1. Analytical procedures 

2. Inspection 3. Confirmation 

4. Enquiry 

5. Recalculation 

6. Observation 

7. Re-performance 

8. Computer-assisted audit techniques