February 2012, an inter-city train did what appeared to be superficial damage to a storage facility of a local company. The directors of the company expressed an intention to sue Verge but in the absence of legal proceedings, Verge had not recognized a provision in its financial statements to 31 March 2012. In July 2012, Verge received notification for damages of $1·2m, which was based upon the estimated cost to repair the building. The local company claimed the building was much more than a storage facility as it was a valuable piece of architecture which had been damaged to a greater extent than was originally thought. The head of legal services advised Verge that the company was clearly negligent, but the view obtained from an expert was that the value of the building was $800,000. Verge had an insurance policy that would cover the first $200,000 of such claims. After the financial statements for the year ended 31 March 2013 were authorized, the case came to court and the judge determined that the storage facility was a valuable piece of architecture. The court ruled that Verge was negligent and awarded $300,000 for the damage to the fabric of the facility.

How to recognize and measure provision regarding above issues in the financial statements of Verge for the year 2012 and 2013?

Comment on the matters to be considered, and explain the audit evidence you should expect to find during your file review in respect of the trade receivable recognized in relation to Cherry Co.

Marks:

Evaluate the audit junior's concerns regarding the management of the audit of Sultana Co.

Marks:

Explain the components of audit risk and, for each component, state an example of a factor which can result in increased audit risk.

Marks:

Using the information provided, identify and describe FIVE audit risks and explain the auditor’s response to
each risk in planning the audit of Abrahams Co.

Marks:

Describe substantive procedures you should perform to obtain sufficient appropriate evidence in relation to:
(i) Inventory held at the third party warehouses; and
(ii) Use of standard costs for inventory valuation.

Marks:

Prepare a statement of profit or loss for the next year for APX Co using the information provided

Marks: 4

Prepare a statement of financial position at the end of the next year for APX Co using the information above

Marks: 5

Analyze and discuss the working capital financing policy of APX Co

Marks: 6

Discuss the role of financial intermediaries in providing short-term finance for use by business organizations.

Marks: 5

Advise whether the factor’s offer is financially acceptable to Widnor Co.

Marks: 7