Part A

You are the audit senior at Best Accountants and are conducting the audit of Revglow Ltd for the year ended 30 June 2021. The audit assistant, Tanya Robinson, has just completed testing of the depreciation of property, plant and equipment (PPE). An extract from her audit working papers is as follows:

Profit before tax

$2,737,000

Property, plant and equipment

$16,564,000

In testing depreciation, Tanya selected a sample of 35 items with a value of $1,672,000. She established a tolerable error 5% of base values. The results of the tests showed systematic errors in the sample of $72,400.

Based on the results, Tanya has concluded that this is an acceptable error and no further work is required.

Required:

Identify and explain two (2) reasons why Tanya's conclusion is incorrect.