Question 5 (5 marks)

Using your firms sampling technique, you have selected representative sample of Property, Plant and Equipment (PPE) items from the asset register. You have decided to use this sample to test whether the depreciation rate assigned to PPE is appropriate and in line with the present condition and expected use over the remaining life of each sample item. The relevant details of the sample selection and results of your test are summarised below:

Profit before tax	$1,875,000
PPE account balance	$11,345,000
Sample size	35
Dollar value of sample taken	$1,145,000
Error in the sample (depreciation rates for some Items were too low and/or remaining useful Life to equipment was overstated)	$48,500

Required:

1. What conclusion would you draw about valuation and allocation of PPE from the above information? Justify your conclusion. (3 marks)
2. Assuming that management refuses to amend the error, discuss the impact of the above information on your audit opinion. (2 marks)