- A review of subsequent events for additional evidence on the valuation of the investment

properties
- We can also engage auditor expert for ensuring reasonableness of the assumption and
valuation techniques.
A.8
a) There are two issues of which evaluation is below
Inventory:
Inventory should be valued at the lower of cost and net realisable value in accordance with IAS 2
Inventories. The overvaluation of 2.7 million was identified in the year ended 30 September 2019
and should have been written off then. It should not be written off over three years.
Inventory is therefore overvalued by Rs. 0.9 million in the year ended 30 September 2020. This
represents 5.6% of Titman’s total assets and 129% of the profit before tax and is therefore clearly
material. In the prior year, inventory would have been overvalued by Rs. 1.8 million, so the
reported profit then should actually have been a loss.
The prior period’s audit report was unqualified, implying that the previous auditor either agreed
with the accounting treatment or issued an inappropriate opinion on the financial statements for
the year ended 30 September 2019. A prior period adjustment is required in accordance with IAS
8 Accounting policies, changes in accounting estimates and errors, so the comparative figures for
the preceding period should be restated in the financial statements and notes and an adjustment
made to the opening balances of reserves for the cumulative effect, as well as being disclosed
appropriately.
Provision
A provision for Rs. 2.3 million has been made in Titman’s accounts for the redundancies and
noncancellable lease payments that would result from the restructuring. This represents 14% of
the total assets for the year and is very material. According to IAS 37 Provisions, contingent
liabilities and contingent assets, a provision should only be recognised if an entity has a present
obligation (legal or constructive) as a result of a past event, it is probable that a transfer of
economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation.
In this case, it is likely that there was a recent obligation at the date of the statement of financial
position, given that Titman was acquired sometime in September 2020 and therefore very close to
the end of the reporting period. Furthermore the provision for restructuring costs should only be
recognised if a formal plan had been prepared and a public announcement made of the plan. If
this had not happened, the provision should not have been recognised in the accounts for the year
ended 30 September 2020. The restructuring should, however, be disclosed in the accounts for the
year ended 30 September 2020 as a non-adjusting event in accordance with IAS 10 Event after
the reporting period.

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