Question
Your audit client is Krazy Keyrings, a manufacturer of keyrings which come in range of patented flourescent colours. In relation to the valuation of capitalised
Your audit client is "Krazy Keyrings", a manufacturer of keyrings which come in range of patented flourescent colours. In relation to the valuation of capitalised research and development costs, you have assessed inherent risk (IR) as high and control risk (CR) as medium.
1/ From your assessment of the business risk of Krazy Keyrings, provide one example of information that would support your assessment of high IR for the valuation of capitalised research and developmentcosts and one example of information that would lead to an assessment of low IR for the capitalisation of research and developmentcosts. (2 marks)
2/ Imagine and provide an example of a control activity of Krazy Keyrings that would support a low assessment of CR and state how you would test this control. (2 marks)
3/ Discuss the appropriate determination of detection risk (DR) and the consequent nature, timing and extent of audit procedures. (2 marks)
4/ After conducting the audit your working papers are reviewed by another partner in your firm. They make the following comment: "I agree you did the level of testing you planned.But that may not be enough to satisfy everyone". State and briefly define which element/s of the audit expectations gap is most likely being referred to. (1.5 marks)
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