Audit
Q38 - Earthstor:
Key audit risks frrom each of transactions
no able to repay loan
confirm creditworthiness: procedures, loan terms verify, security if loan not repaid, examin correspondence e.g. legal/board mins/letters/emails
Loan wrongly classified
Need to read terms of loan agreement and look for signs early repayment
Loan approved without proper checks
confirm board approval loan, review treasury checks credit and legal advice
Loan terms not arms length
Inspect supply contracts for discounts linked to loan compare past prices/
Foreign exchange risk
confirm exchange rate used on loan reclaculate using average closing rate
Adjustments are over £120k - so needs to be reported to audit committee
Audit risk: increased capex during year - risk that there both external and internally generated expenditure relating to web that incorrecltly capitlised instead of written off to P&L
Risk useful life of 7 years excessive given nature of expenditure
Audit procedures: Obtain details of internal software development costs and agree to invoices from 3rd parties/staff costs agree to time records
Ensure costs are capitalised are relating to project and not time spent on management
Consider appropriateness of useful life enquire management and past history of similar projects
Inherent risks:
Management TT plans £40m revaluatoin - this is using internal staff instead of external valuers - meaning increases risk management overstate PPE to boost net assets
training needs and revenue fluctuarte with changing regulations and so facilities and courses need change over time - asset lives could be shorter
PPE are material and large amonuts so small errors in additions disposals are material
New construction of business school - £13.5m ad reburshment are complex there is risk material misstatement of transactions - that the repairs are wrongly capitalised and not depreciated
The projects including software (capitalised) and training (expeses) might be correctly capitalised a at overstated)
Timing of transfers may cause understating depreciation
The disposals are very low and risk that old assets still on register and not written off
There is susceptibility of theft -leading to overstatement of PPE
Control risks
Harry was on leave as sick - replacement is from estates team not finance so there is a risk of errors on lack of accounting expertise
Segregation of duties - estate staff both approve and record the PPE so there is weak segregation of duties raise risk of unauthorised or incorrect entries
Systems - PPE record help on spreadsheets and risk of errros, poor secrurity
Detection risks:
Prior audits had no major issues so detection risk is relatively lower
But if auditors rely on management internal valuation - there is a risk of not detecting the misstatement
Outline audit approach for PPE balance 31 Aug 20x6 - expalins:
Testing Completeness and accuracy of additions to F&F and PPE posted during the year. More judgement required/analysis required for projects for additions of F&F and PPE
Physical verficiation good control over unrecorded disposals and should be relied
expert: revaluation of land and buildings - expert look at assumptions, conclusions valuation report ensure reasonable not show bias
Re-perform depreciation calculations for assets both at charge fot year and remaining carrying amount./ check accruacy of PPE register, select samples for controls testing identify journals/unusual transactions further investigation
Substantive analytical procuedres: if deprecation chaarge not tested using audit sfotware - needs to be tested using substantive analytical proceudres establish an expectation of deprecitaion charge for year based on cost/valuation of assets, additions disposals in year, fully dpreciated, average useful life of assets,
Test of detail:
Review of projects completed in year and test the appropriateness of amounts capitalised, timing of transfer from assets, classficiation, complete recording of disposals
Testing additons to PPE for first 9mths year
Test deisposal recorded
Review agreements and further consideration of financial reporting treatment
Testing of data used by estate department as part of revaluation of freehold L&B