You are auditing a manufacturing company that produces diesel technology to support the automotive industry. The company has had healthy annual net income for the last 10 years, but they currently lack the technological abilities to shift to take advantage of the electric car revolution and beyond without significant investment. Upon review of their asset portfolio, the company decides to invest significantly in new manufacturing equipment to support the shift to electric car technology. The impact of this is that almost all of their current equipment is obsolete. The company believes that this qualifies as a case for impairment under their impairment policy and under AASB 136. As the company is reporting a significant impairment loss for this financial period, this puts you on notice as the auditor. The company sought the expertise of an external valuer to support the determination of fair value in calculating the recoverable amounts for their assets. All the valuations are carefully documented for your benefit. The valuer makes a couple of assumptions, including that the diesel manufacturing assets only have scrap value in Australia and records that in the valuation. Asset Carrying Amount Recoverable Amount Diesel Technology Patents $8,400,000 $1,800,000 Manufacturing Equipment $30,000,000 $500,000 Factory and Premises $41,000,000 $20,000,000 You are not overly concerned about the patent valuation, as this is jurisdictionally specific to Australia. However, you are less sure about the other two impairments claimed (totally $50,500,000). These figures concern you for a couple of reasons: 1. Diesel technology still has value in Australia and you also know that there are active markets overseas for this technology; 2. You are unsure why the factory/premises is impaired in value the factory building is still in good condition and would easily be converted to support electric car manufacturing or sold at a likely profit. Required Evaluate the evidence you have obtained in relation to impairment. Identify any risks or red flags in relation to the potential for material misstatement that you consider important in your role as an auditor. Suggest what actions you think you would need to undertake based on your evaluation.