QUESTION 2

Jack Motors manufactures a range of motor cars and its year end is 31st January 2019. You are the audit supervisor of Ayeyi & Partners and are currently preparing the audit programmes for the year-end audit of Jack Motors. You have had a meeting with your audit manager and he has notified you of a number of issues identified during the audit risk assessment process. Land and buildings Jack Motors have a policy of revaluing land and buildings, this is undertaken on a rolling basis over a five-year period. During the year Jack Motors requested an external valuer to revalue a number of properties, including a warehouse purchased in May 2018. Depreciation is charged on a pro rata basis. Work in progress Jack Motors undertakes continuous production of cars, 24 hours a day, and seven days a week. An inventory count is to be undertaken at the year end and Ayeyi & Partners will attend. You are responsible for the audit of work in progress (WIP) and will be part of the team attending the count as well as the final audit. WIP constitutes the partly assembled cars at the year end and this balance is likely to be material. Jack Motors values WIP according to percentage of completion, and standard costs are then applied to these percentages.

Required:

i. Explain the factors Ayeyi & Partners should consider when placing reliance on the work of the independent valuer. [10 marks]

ii. Describe the substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to:

a. The revaluation of land and buildings [5 Marks]

b. The recently purchased warehouse. [5 Marks]