Audit Evidence $-$ In class end of chapter review $-$ ACCA extracted $(5\%)$

ILOs $($A$3,$ B$1,$ C$1,$ D$1,$ D$2,$ D$3,$ D$4)$

KYANITE PIZZAS CO $($JUNE $2016$ AMENDED$)$

The following scenario relates to questions $6-10$

Kyanite Pizzas Co $($Kyanite$)$ operates a large chain of fast food restaurants. You are an audit supervisor of Jasper & Co and are currently preparing the audit programmes for the audit of Kyanite's financial statements for the year ended $30$ June $20$X$6.$ You are reviewing the notes of last week's meeting between the audit manager and the finance director where two material issues were discussed.

Property plant and equipment

In the past Kyanite has received negative press reports over the condition of its fast food restaurants, with comments suggesting they are old fashioned and tired looking. Therefore during the year the company undertook a full review of all its assets and carried out extensive refurbishments to the majority of its restaurants. This review resulted in a significant amount of ageing fixtures and fittings being disposed of and a significant amount of capital expenditure was invested in all remaining restaurants.

Equity

The refurbishment was financed via a share issue in July $205$ at a premium of $$1\mathrm{.}6m.$

A$.$ Your colleague has produced the following risk assessment on the basis of her review of Kyanite's information:

There is a going concern risk due to negative press reports being received

There is a risk property, plant and equipment will be overstated if repairs are wrongly capitalised as non$-$current assets

There is a risk that consumers do not like the refurbishments and the cost is therefore wasted.

There is a risk that management carried out the refurbishment to fraudulently profit from the disposal of old fixtures and fittings.

Which of the above do you consider to be valid audit risks on the basis of the information given about Kyanite?

a$.1$ and $4$

b$.1$ and $3$

c$.2$ and $4$

d$.$ Only $2$

B$.$ Which of the following procedures does not test completeness of property, plant and equipment?

a$.$ Obtain a list of additions, cast it and trace items to the non$-$current asset register.

b$.$ Review the repairs account in the general ledger to ensure no items appear to be capital in nature.

c$.$ Review related supplier invoices for the additions to non$-$current assets.

d$.$ Trace items removed from non$-$current asset register to sales invoices or other disposal documents.