Q1

Kyanite Pizzas Co (Kyanite) operates a large chain of fast food restaurants. You are an audit supervisor of
Jasper & Co and are currently preparing the audit programmes for the audit of Kyanite’s financial
statements for the year ended 31 March 2016. You are reviewing the notes of last week’s meeting
between the audit manager and finance director where two material issues were discussed.

(i) Property, plant and equipment

In the past Kyanite has received negative press reports over the condition of its fast food restaurants, with
comments suggesting they are old fashioned and tired looking. Therefore during the year the company
undertook a full review of all its assets and carried out extensive refurbishments to the majority of its
restaurants. This review resulted in a significant amount of ageing fixtures and fittings being disposed of
and a significant amount of capital expenditure was invested in all remaining restaurants. (7 marks)

(ii) Equity
The refurbishment was financed via a share issue in April 2015. (4 marks)

Required:
Describe substantive procedures you should perform to obtain sufficient and appropriate audit evidence in
relation to the above two matters.
Note: The mark allocation is shown against each of the two matters above. (10 marks)

(i) Property, plant and equipment

Classification
- Vouching, ledger to source document
- From selected sample of addition from the fixed asset register vouch to the description on
the asset purchase invoice to the confirm whether it is revenue in nature of capital in
nature. If it is revenue in nature ensure the amount have been charge to SOPL.

The auditor need to obtain a breakdown of additions and disposal and perform casting to
ensure mathematical accuracy. PPE list and agree included in the non-current assets register
to confirm completeness of fixtures and fittings in Financial Statement of Kyanite Pizzas Co.
This will confirm the assertion of existence of fixtures and fittings in the Financial Statement.

Auditor need select a sample of additions from fixed asset register and agree cost to supplier
invoice to confirm valuation to confirm the amount of fixtures and fittings recorded correctly.

Besides, the auditor also can verify rights and obligations by agreeing the addition of fixtures
and fittings to a supplier invoice in the name of Kyanite Pizzas Co.

Auditor need physically inspect sample of additions in the fixed asset register to confirm
existence of fixture and fittings and also to ensure it is function properly. them via site visits
to a sample of fast food restaurants to confirm existence of fixtures and fittings.
 Physical Inspection assets and records
The auditor will agree the amount and item in Purchase Invoice of fixtures and fittings in
order to ensure that the PPE recorded on the Kyanite Pizzas Co’s Statement of Financial
Position under Non-Current Assets. This will confirm that the assertion of existence of
fixtures and fittings as a non-current asset in the Kyanite Pizzas Co’s Financial Statement
which is Statement of Financial Position. There are no omissions of assets that should be
recorded and disclosed.

The auditor will inspect the Financial Statement to confirm disclosure of the additions and
disposals are complete in the draft financial statements in accordance with the requirement of
IAS 16 Property, Plant and Equipment.

Auditor need obtain a breakdown of disposals, and review the non-current asset register to
ensure the asset and the respective amount have been fully removed and no more depreciation
is being provided. cast the list and agree all assets removed from the non-current assets
register to confirm existence.

Besides, the auditor will inspect the repairs and maintenance account in the general ledger for
items of a capital nature in order to ensure that the disclosures relating to PPE is completed
and recorded must be included in the Kyanite Pizzas Co’s financial statement. This will
confirm the completeness of additions related to the PPE in the Kyanite Pizzas Co’s Financial
Statement. (we inspect PPE no need repairs and maintenance account)

Recalculation
Recalculate the depreciation of fixtures and fittings for a sample of additions and disposals to
confirm the calculations are correctly applied as per the Kyanite Pizzas Co’s company policy
of a pro rata basis or a full year in the year of acquisition and none in the year of disposal.

For selecting sample of disposal of fixtures and fittings, the auditor should recalculate the
profit or loss on disposal of PPE by obtaining the sales proceed and deduct the net book value
and agree the correct cost, accumulated depreciation and depreciation to the FAR (fixed asset
register) to ensure mathematical accuracy. Kyanite Pizzas Co’s Statement of Finance Position
and Statement of Profit or Loss. This will confirm the mathematical accuracy.

(ii) Equity

The auditor can review the resolution on the issuance of additional share capital during the
year to confirm it has been authorised.

The auditor also will agree the issue of shares in 2015 is permitted from a review of statutory
constitution of Kyanite Pizzas Co in place. This will confirm whether issue of additional
share capital has been properly approved by Kyanite Pizzas Co’s director in 2015.
(Existing + additional share capital should not exceed the authorized share capital.)

Besides, the auditor will inspect the Kyanite Pizzas Co’s Cash Book and Bank Statements for
evidence of cash receipts from the share issue.
This will confirm the assertion of existence of cash receipts as a cash inflow in the Kyanite
Pizzas Co’s Financial Statement.

auditor need to agree the difference is treated as share capital called up but not paid in the
financial statements.

The auditor will recalculate the split of proceeds between the nominal value of shares and
premium on issue and agree correctly recorded within share capital and share premium
account in Statement of Financial Position of Kyanite Pizzas Co.

The auditor will review the disclosure relating to share issue in the Financial Statements of
Kyanite Pizzas Co and ensure it is in line with relevant accounting standards????IAS 1 POFS
and local legislation??? CA 2016.