Question
You are the audit manager of MM Electronics Bhd (MM). The company markets its products through retail outlets in nine major cities. The net profit
You are the audit manager of MM Electronics Bhd (MM). The company markets its products through retail outlets in nine major cities. The net profit after tax is RM 20 million with net assets of RM150 million for financial year ended March 2020. The audit team has noted the following matters for your consideration (i) During the year the MM has changed its policy on valuation of property, plant and equipment from historical cost to revalued amount. For this purpose, the services of a professional valuer, Jones International Sdn Bhd was hired. They have issued valuation reports of three outlets indicating a revaluation surplus of RM 10 million, which has been recognized in the financial statements. The management has informed you that the valuation reports of the remaining properties are expected to be issued in June 2020. (ii) In February 2020, MM was sued for breach of contract by a customer claiming damages of RM10million. The legal advisor has confirmed the management's assertion that no liability existed at the date of financial statements. However, while reviewing the customers' files, you found an email from the Manager (Legal Department) addressed to the Chief Executive in which he has agreed that the company will have to pay at least 50% of the damages claimed. (iii) With effect from 01 July 2019, the company has introduced a policy of providing one year warranty on its television sets. No warranty is provided on the other products. Sales of television sets aggregated RM. 20 million, whereas the total sales for the year amounted to RM 80 million. The company has a customer support department which provides after sales services on all products. For defects not covered under the warranty, the company bills the customers at 25% above cost. The management has included a note in the draft financial statements stating that no provision has been made in respect of the warranty, as the amount cannot be measured reliably
Express your views on each of the above situations and discuss the act thereof on the audit report
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