1.XZ Limited owns several (less than 10) expensive residential properties in Hong Kong and Mainland China, all are used for earning rental income. This is the major operating activity of XZ Limited. The company is owned by six shareholders who engage two directors to operate the business. The director plan to acquire more and more properties in the future, therefore, a lot of resources are allocated to set up a good internal control system for the collection of rental income.

Required:

(a)Assess with reasons the inherent risk of material misstatement of the existence of XZ Limited's investment properties.

(b)Assuming that the substantive approach is adopted, list four audit procedures that should be performed in addressing the existence assertion of investment properties.

(c)The company adopts the Fair Value Model for the accounting of the investment properties. The auditor has decided to use an expert's services regarding the fair value of the investment properties. What matters should be agreed between the auditor and the auditor's expert?

(d)Assuming the substantive approach is adopted, what the audit procedures to be performed for the rental income?

(e)Assuming the company maintained good internal control for the collection of rental income, is it appropriate for the auditor to adopt the substantive approach for the audit of rental income?