You are one of two partners at Diligence Chartered Accountants, a small, specialist audit firm based in the Central West of NSW with clients in the aged care, retail, tourism, agri-business, local government, community banking, and education sectors. It's a snowy Thursday evening in early July 2021 and you're meeting with your audit teamKel Richards (Manager), Sally Neilson (Senior), Kristin Jensen (Graduate), and Josh McDowell (Undergraduate) to review the working papers and follow up on some issues from the recently completed interim audit on Inland Dominion Enterprises (IDE) Pty Limited before beginning the final audit in mid-August.

Kristin and Josh only began audit work this year, Sally and Kel are very experienced and have been with Diligence for 8 years. IDE is a conglomerate, privately owned by twin brothers Barry and Neville Joffe. With a background in farming, the Joffe brothers have operated Mayfield Agricultural for more than twenty years before establishing IDE in 2016 to enable them to secure controlling stakes in sheet metal fabricator Small Town Steel and tourism operator Hockeys Resorts over the last 5 years.

Question 2. Small Town Steelsampling methods and projecting errors

Small Town Steel is based in Molong, NSW, and produces a range of high-quality steel fabrication products including tubes, pipes, plates, fasteners, and fittings for the industrial, commercial, and residential sectors. Sales to the commercial sector have been steady but thanks to a mining and building boom, sales to the industrial and residential sectors have doubled in the past year.

Property, plant, and equipment (PPE) is one of Small Town Steels most material balances. During her planning for the audit of PPE your Graduate, Kristin Jensen, notes a major investment in a new manufacturing process. This is supported by her preliminary analytical procedures which indicate an increase in acquisitions of PPE.

As per her interim audit procedures, Kristin tested the appropriateness of the depreciation rates assigned to PPE, and whether it is consistent with the present condition and expected use of the assets over the remaining life. Kristin sampled 28 PPE items, with a total dollar value of $1,325,000. The results show that for the sample items some depreciation rates were too low and/or the remaining useful life of the equipment was overstated by management. Together these issues produce an error in the sample of $63,500. Small Town Steel has a profit before tax for the current year of $1,673,000 and a PPE balance at the end of the year of $10,325,000.

Required

Discuss with Kristin the:

1. appropriate method of sampling PPE for the planned tests of depreciation and population definition.
2. assertion(s) most at risk.
3. expected conclusion about the assertion(s) at risk with evidence to support that conclusion.