Advanced Audit and Assurance

Question:

Describe the audit procedures that an external auditor should perform towards IEB and their subsidiary.

On 1 January 2011, Ikhwan Enterprise Berhad (EB) acquired 100% controlling interest in Rahman Manufacturing Sdn Bhd (RMSB) by investing RM100,000. At that time the identifiable assets and liabilities of RMSB are as follows: 1/1/2011 RM 60,000 10,000 10,000 10,000 20,000 31/12/2014 RM 80,000 20,000 60,000 20,000 30,000 Descriptions Property, Plant and Equipment Inventories Amount owed by the Directors Trade Receivables Cash at Bank Total Assets 110,000 210,000 Ordinary Shares Retained Earnings 50,000 20,000 40,000 50,000 100,000 60,000 Long Term Liabilities Total Equities and Liabilities 110,000 210,000 As at, 31 December 2014, IEB shows the amount of goodwill on consolidation in their financial statements to be RM30,000. During the year of 2014, sales and purchases between IEB and RMSB amounting to RM50,000. RM 10,000 of these sales still remained in IEB's inventories. The profit margin for these sales was 20% on invoiced price. The management has given verbal assurance that there is no impairment in goodwill of their subsidiary