Thank you in advance for your assistance

3. Concluding The second-year trainee requested your help with a few issues he found during the audit of IT. This email is included below: To: Assistant Manager a.manager@numbers.co.za From: Trainee Date: 28 October 2020 Re: Issues noted Hi Assistant Manager During the testing of some sections we came across the following issues. Please let me know when we can discuss them as well as the corresponding impact they will have on the audit. Ivy and Andrew have already indicated they will not be adjusting the records for the issues identified. For the purposes of testing, materiality was set at R500 000. Issue 1 When discussing the intangible asset policy with Andrew Smith, Andrew indicated that it is the company's policy to capitalise a small percentage (1%) of the total research expense for the year and include it as an intangible asset in the annual financial statements at year end. Andrew mentioned that the prior auditors never had an issue with this practice as the amount capitalised was below materiality. The total research expense for the current year amounted to R5 000 000. Issue 2 IT has an item of equipment that is used to manufacture the pistons used in the train. The equipment works on battery life rather than electricity - an efficiency that has reduced the electricity costs of IT quite significantly. When reviewing the repairs and maintenance account an amount of R2 000 000 was identified. When I enquired from Andrew as to what this expense related to, he indicated that it was the new battery that was purchased 1 March 2020 for the piston machine. Andrew noted that the useful life of such a battery is 6 years.C By only using the information contained under the Part - 3 19 20 Concluding, discuss how each of the issues (1 and 2) identified will impact the audit opinion. You may ignore tax consequences. Communication: Structure and clarity of expression