Audit Procedures

Gruber Co

Investment Property

– Review board minutes for details of the reason for the purchase, to understand the business
rationale, and confirm board approval of the transaction.

– Agree the $15 million paid to the company’s bank ledger account/cash book and bank
statements.

– Agree the carrying amount of the property to Gruber Co’s non‐current asset register to confirm
the initial value of the property has been recorded appropriately.

– Obtain proof of ownership e.g. title deeds, legal documentation to confirm that the company owns
the building.

– Visit the building to obtain evidence of existence and occupancy of the building by retail
establishments to confirm that the property has been appropriately classified as an investment
property.

– Obtain and inspect rental agreementsforthe retailers who occupy the Nakatomi Building, to
confirm that the property is not owner‐occupied and that it generates a rental income to verify
classification.

– Enquire as to whether the company holds any other investment property, and if so, confirm it is
also held at fair value to confirm that the accounting treatment is consistent for all investment
property.

– Discuss with management the rationale for the accounting policy choice to measure the property
at fair value and confirm that the notes to the financial statements state that this is the company’s
accounting policy.

Pale Co

Fair Value Timber Plantation Asset

- Discuss the expert’s methodology and assumptions with management to confirm their rationale
and compliance with the measurement requirements of IAS 41 Agriculture.

- Obtain confirmation of the expert’s qualifications and experience in assessing storm damage to
timber plantation assets and quantifying financial losses.

- Obtain confirmation that the expert is independent from Pale Co and its management team.

- If possible, visit the site of the storm damage to form a view on the scale of the destruction and to
evaluate whether any assets other than the trees have been destroyed or damaged.

- Discuss with management the actions which have been taken in response to the storm, e.g. the
extent of progress made to clear the destroyed trees and harvest the damaged trees.

- Obtain any documentation relating to any potential sale of damaged trees, e.g. customer orders,
to confirm any realisable value of damaged trees.
- From the non‐current asset register, confirm the carrying amount of the standing trees prior to any
change in fair value being recognised.

- Consider whether the use of an auditor’s expert is necessary to provide sufficient and appropriate
evidence given the materiality of the figures.

- Develop an auditor’s estimate of the fair value of the timber plantation, in accordance with the IAS
41 requirements, and compare to management’s estimate of the change in fair value.

- Obtain a copy of the company’s insurance policy and review the terms and conditions to confirm
whether the storm damage is covered by insurance.

Ryder Group
Classification of Investment in Peppers Co

- Review board minutes to confirm the approval of the investment and to understand the business
rationale for the investment.

- Review minutes of relevant meetings between the Group and Smiths Co to confirm that control is
shared between the two investors and to understand the nature of the relationship and the
decision‐making process.

- Obtain documentation such as Peppers Co’s organisational structure to confirm that the Group
has successfully appointed members to the board of the company and that those members have
equal power to the members appointed by Smiths Co.

Government Grant

- Agree the amount received to bank statements and Ryder Co’s bank ledger account/cash book.

- Obtain and review the Group’s asset (capital) expenditure forecast to confirm the amount planned
to be spent on assets relating to environmental matters.

- Discuss the use of the grant to fund an advertising campaign with an appropriate person, e.g.
Group marketing director, and review any plans to use the funds for promotional purposes to
confirm that recycling features in the campaign, as intended by the government.

- Confirm, through agreement to marketing plans, whether any funds will be spent during this
financial year.

- Obtain a written representation from management that the grant received will be used for the
specific purposes required by the government.

SunShine Hotel

– Obtain the letter received from Ocean Protection and review to understand the basis of the claim,
for example, to confirm if it refers to a specific incident when damage was caused to the coral
reefs.

– Discuss the issue with the Group’s legal adviser, to understand whether in their opinion, the
Group could be liable for the damages, for example, to ascertain if there is any evidence that the
damage to the coral reef was caused by activities of the Group or its customers.
– Discuss with the Group’s legal adviser the remit and scope of the legislation in relation to
environmental protection to ensure an appropriate level of understanding in relation to the
regulatory framework within which the Group operates.

– Discuss with management and those charged with governance the procedures which the Group
utilises to ensure that it is identifying and ensuring compliance with relevant legislation.

– Obtain an understanding, through enquiry with relevant employees, such as those responsible for
scuba diving and other water sports, as to the nature of activities which take place, the locations
and frequency ofscuba diving trips, and the level of supervision which the Group provides to its
guests involved in these activities.

– Obtain and read all correspondence between the Group and Ocean Protection, to track the
progress of the legal claim up to the date that the auditor’s report is issued, and to form an opinion
on its treatment in the financial statements.

– Obtain a written representation from management, as required by ISA 250, that all known
instances of non‐compliance, whether suspected or otherwise, have been made known to the
auditor.

– Discuss the issue with those charged with governance, including discussion of whether the
Group has taken any necessary steps to inform the relevant external authorities, if the Group has
not complied with the international environmental protection legislation.

– Review the disclosures, if any, provided in the notes to the financial statements, to conclude as to
whether the disclosure is sufficient for compliance with IAS 37.

Laurel Group
Impairment of Chico brand

– Obtain management’s calculationsrelevant to the impairment and review to understand

methodology, for example, whether the brand has been entirely or partly written off.

– Evaluate the assumptions used by management in their impairment review and consider their
reasonableness.

– Confirm the carrying amount of the Chico brand pre‐impairment to prior year financial statements
or management accounts.

– From management accounts, obtain a breakdown of total revenue by brand, to evaluate the
significance of the Chico brand to financial performance and whether it constitutes a separate line
of business for disclosure as a discontinued operation.

– If the brand is not fully written off, discuss with management the reasons for this treatment given
that the brand is now discontinued.

– Obtain a breakdown of operating expenses to confirm that the impairment is included.

– Review the presentation of the income statement, considering whether separate disclosure of the
impairment is necessary given its materiality.

Acquisition of Azalea Co

– Read board minutes to understand the rationale for the acquisition, and to see that the
acquisition is approved.
– Discuss with Group management the way that control will be exercised over Azalea Co, enquiring
as to whether the Group can determine the board members of Azalea Co.

– Obtain any due diligence reports which have been obtained by the Group and review for matters
which may need to be disclosed in accordance with IAS 10 or IFRS 3.

– Obtain copies of the finance agreement for the funds used to purchase Azalea Co.

– After the reporting date, agree the cash consideration paid to bank records.

Dali Co
Valuation of work in progress

- Obtain a schedule itemising the jobs included in work in progress at the year end, cast it and
agree the total to the general ledger and draft financial statements.

- Agree a sample of itemsfrom the schedule to the inventory count records.

- To assess the completeness of work in progress, select a sample of customer orders and trace
through to the list of jobs included in work in progress.

Government Grant

- Obtain the documentation relating to the grant to confirm the amount, the date the cash was
received, and the terms on which the grant was awarded.

- Review the documentation for any conditions attached to the grant, for example, is there a
requirement that a certain number of people are employed at the manufacturing plant?

- Discuss with management the method of recognition of the amount received, in particular how
much of the grant has been recognised in profit and the treatment of the amount deferred in the
statement of financial position.

- For the part of the grant relating to wages and salaries, confirm that the grant criteria have been
complied with by examining payroll records and timesheets to verify that $2 million has been spent
on wages in the deprived area.

- For the part of the grant relating to continued operation of the manufacturing site, determine the
basis on which this is being released into profit and recalculate to confirm accuracy of
management’s calculations.

- Review forecasts and budgets in relation to the manufacturing site to assess the likelihood of its
continued operations until 20Y0.

- Using the draft financial statements, confirm the accounting treatment outlined by discussion with
management has been applied and recalculate the amounts recognised.

- Confirm the cash received to bank statement and bank ledger account/cash book.
Connolly Co
Purchased Brand Name

- Review board minutesfor evidence of discussion of the purchase of the acquired brand, and for its
approval.

- Agree the cost of $5 million to the company’s bank ledger account/cash book and bank statement.

- Obtain the purchase agreement and confirm the rights of Connolly Co in respect of the brand.

- Discuss with management the estimated useful life of the brand of 15 years and obtain an
understanding of how 15 years has been determined as appropriate.

- If the 15‐year useful life is a period stipulated in the purchase document, confirm to the terms of
the agreement.

- If the 15‐year useful life is based on the life expectancy of the product, obtain an understanding of
the basis for this, for example, by reviewing a cash flow forecast of sales of the product.

- Obtain any market research or customer satisfaction surveys to confirm the existence of a
revenue stream.

- Consider whether there are any indicators of potential impairment at the year end by obtaining
pre‐year‐end sales information and reviewing terms of contracts to supply the products to
pharmacies.

- Recalculate the amortisation expense for the year and agree the charge to the financial
statements, and confirm adequacy of disclosure in the notes to the financial statements.

Adams Group

Investment in Associate

– Obtain the legal documents relating to the share acquisition, and review to confirm the terms and
conditionsincluding the number of shares purchased and the voting rights attached to each share.

– Agree the cost of investment of $11.5 million to the legal documentation and to Adams Co’s bank
statement and bank ledger account/cash book.

– Review the minutes of Group management meetingsto understand the business rationale for the
investment, and to confirm that the Group intends to exercise significant influence over Stewart Co,
for example, through appointment of board members.

– Obtain management’s calculation to determine the $12 million recognised in the Group financial
statements, review the method of the calculation for compliance with IAS 28.

– Obtain the financial statements of Stewart Co to confirm the amount of profit made in the year
and confirm that the Group’s share of that profit is included in the Group financial statements.

– Enquire with management as to whether any impairment review of the investment in Stewart Co
has taken place, and if so, obtain management’s workings and review the assumptions used and
the method of calculation.
Crux Co

Segmental Information

- Review the financial reports sent to the highest level of management to confirm the basis
ofsegmental information which isreported internally and confirm that this basis is used in the notes
to the published financial statements.

- Review the Group’s organisational structure to confirm the identity of the chief operating decision
maker.

- Discuss with management the means by which segmental information is reviewed by the chief
operating decision maker, e.g. through monthly financial reports and discussion at board meetings.

- Review board minutes to confirm that the segments as disclosed are used asthe basis for
monitoring financial performance.

- Discuss with management whether the on‐board sales should be reported separately given that it
appears to constitute a reportable segment contributing more than 10% of total Group sales and is
actively monitored.

- Obtain a breakdown of the revenue, e.g. by cruise line or individual ship, to confirm that revenue
has been appropriately allocated between the reportable segments.

- Perform analytical procedures to determine trends for each segment and discuss unusual
patterns with management.

- Recalculate the revenue totals from the breakdown provided to confirm that they are reportable
segments i.e.that they each contribute more than 10% of revenues.

Rick Group

Sale of Property

– Review board minutes to see if the property sale has been deliberated, i.e. has the rationale for
the transaction been discussed, and formally approved by the company’s board.

– Agree the $50,000 sale price to the legal documentation relating to the sale of the property to the
Group CEO.

– Confirm the carrying amount of the property at the date of disposal to underlying accounting
records and the non‐current asset register.

– Confirm that the asset has been removed from the company accounts at the date of disposal.

– Obtain management’s determination of profit or loss on disposal, reperform the calculation based
on supporting evidence, and agree the profit or loss is recognised appropriately in the company
statement of profit or loss.

– Obtain an estimate of the fair value of the property, for example, by comparison to the current
market price of similar properties and consider the reasonableness of the transaction and sale
price.

– Obtain written representations from company management that all matters related to this related
party transaction have been disclosed to the Group management and to the Group audit team.
– Obtain written representation from the Group CEO regarding the transaction, to confirm the
amount which is outstanding, and the likely timescale for payment.

– Review cash receipts after the reporting date to confirm whether or not the $50,000 has been
received from the Group CEO.

Eagle Group
Goodwill

− Obtain the legal documentation pertaining to the acquisition, and review to confirm that the
figures included in the goodwill calculation relating to consideration paid and payable are accurate
and complete.

− Also confirm from the purchase documentation that the Group has obtained an 80% shareholding
and that this conveys control.

− Agree the $80 million cash paid to the bank statement and bank ledger account/cash book of the
acquiring company.

− Review the board minutes for discussions relating to the acquisition, and for the relevant minute
of board approval.

− For the contingent consideration, obtain management’s calculation of the present value of $271
million, and evaluate assumptions used in the calculation, in particular to consider the probability of
payment by obtaining revenue and profit forecasts for Lynx Co for the next four years.

− Discuss with management the reason for using an 18% interest rate in the calculation, asking
them to justify the use of this interest rate when the Group’s weighted average cost of capital is
stated at 10%.

− Evaluate management’s rationale for using the 18% interest rate, concluding as to whether it is
appropriate.

− Confirm that the fair value of the non‐controlling interest has been calculated based on an
externally available share price at the date of acquisition.

− Obtain a copy of the due diligence report issued by Sidewinder & Co, review for confirmation of
acquired assets and liabilities and their fair values.

− Evaluate the methods used to determine the fair value of acquired assets, including the property,
and liabilities to confirm compliance with IFRS 3 and IFRS 13 Fair Value Measurement.

− Review the calculation of net assets acquired to confirm that Group accounting policies have
been applied.

Cheetah

Termination of Contract

- Analytically review the total historic value of revenue earned from the customer to help determine
an appropriate estimate for the potential loss of future revenues and cash inflows.

- Enquire of management whether the loss of the customer will have any other repercussions, such
as the sale of specific assets or the redundancy of staff and the costs associated with this if such
action was required.

- Perform an analytical review to identify other major customers by value of revenue contributions
to the business. For all major customers identified, review any supply agreements/contracts in
place to determine when they expire.

- If any contracts with major customers are due to expire within the next few years, enquire of
management whether any discussions have taken place with those customers in relation to
renegotiating the terms.

- Obtain any correspondence available with the identified major customers to identify whether there
is any indication that they may attempt to either renegotiate the terms of their agreements or switch
them to a new supplier.

Gifted Land

- Review the termssupplied when the land was originally gifted to Zebra Co. Identify the specific
restrictions in relation to how the land may be used and who the land may be sold to in the future.

- Enquire of a legal adviser whether this will have any impact in relation to the sale of the land to
Cheetah Co and their consequent usage of it.

- Engage a land valuation expert to provide a valuation of the land. Ask them to consider the
implications of the restrictions imposed upon the land in the valuation.

- If Zebra Co is not permitted to sell the land, or the restrictions imposed on the usage of the land
are too restrictive, seek legal advice in relation to the potential options, including whether the land
can be gifted back to the local authority prior to the acquisition.

- Inspect the forecasts prepared by the management of Zebra Co to identify the specific forecast
costs and revenues associated with the usage of the land.

Retriever
- Review bank statements and bank ledger account/cash book to confirm that payments to the
insurance company are up to date, to ensure the cover has not lapsed.

- Watch the CCTV to form an impression of the quantity of goods stolen, for example, how many
boxes were loaded onto the lorry.

- If possible, from the CCTV, determine if the boxes contain either mobile phones or laptop
computers.

- Inspect the boxes of goods remaining in the warehouse to determine how many items of finished
goods are in each box.

- Agree the cost of an individual mobile phone and laptop computer to accounting records, such as
cost cards.

- Perform an inventory count on the boxes of goods remaining in the warehouse and reconcile to
the latest inventory movement records.

- Discuss the case with the police to establish if any of the goods have been recovered and if, in
the opinion of the police, this is likely to happen.

- Obtain details ofthe stolen lorry, for example the licence plate, and agree the lorry back to the
non‐current assetregister where its carrying amount should be shown.
Gannet
Interim Review

- Comparing the interim financial information with anticipated results, budgets and targets as set by
the management of the company.

- Comparing ratios and indicators for the current interim period with those of entities in the same
industry.

- Considering relationships among financial and non‐financial information. The auditor also may
wish to consider information developed and used by the entity, for example, information in monthly
financial reports provided to the senior management or press releases issued by the company
relevant to the interim financial information.

- Comparing recorded amounts or ratios developed from recorded amounts, to expectations

developed by the auditor. The auditor develops such expectations by identifying and using
plausible relationships that are reasonably expected to exist based on the accountant's
understanding of the entity and the industry in which the entity operates.

- Comparing disaggregated data, for example, comparing revenue reported by month and by
product line or operating segment during the current interim period with that of comparable prior
periods.

- Calculate the warranty provision as a percentage of new car sales up to 1 February 20X5 and
compare with the year‐end ratio to ensure the level of provision is consistent.

- Compare the warranty costs in the 6‐month period with the warranty provision and assess
whether the warranty provision appears reasonable given the current level of warranty claims.