Reference no: EM132918468
You are the manager responsible for the audit of Ibrahim and Brothers. The company's principal activity is wholesaling frozen fish. The draft consolidated financial statements for the year ended 31 March 20X8 show revenue of MVR 67.0 million (20X7 - MVR 62.3 million), profit before taxation of MVR 11.9 million (20X7 - MVR 14.2 million) and total assets of MVR 48.0 million (20X7 - MVR 36.4 million). The following issues arising during the final audit have been noted on a schedule of points for your attention.
(a) In early 20X8 a chemical leakage from refrigeration units owned by Ibrahim Brothers caused contamination of some of its property. Ibrahim Brothers has incurred MVR 0.3 million in clean-up costs, MVR 0.6 million in modernisation of the units to prevent future leakage and a MVR 30,000 fine to a regulatory agency. Apart from the fine, which has been expensed, these costs have been capitalised as improvements.
(b) While the refrigeration units were undergoing modernisation Ibrahim Brothers outsourced all its cold storage requirements to Shareef Warehousing Services. At 31 March 20X8 it was not possible to physically inspect Ibrahim Brothers' inventory held by Shareef Warehousing Services due to health and safety requirements preventing unauthorised access to cold storage areas. Ibrahim Brothers' management has provided written representation that inventory held at 31 March 20X8 was MVR 10.1 million (20X7 - MVR 6.7 million). This amount has been agreed to a costing of Shareef Warehousing Services' monthly return of quantities held at 31 March 20X8.
(c) Ibrahim and Brothers owns a residential apartment above its head office. Until 31 December 20X7 it was let for MVR 3,000 a month. Since 1 January 20X8 it has been occupied rent-free by the senior sales executive.
Required
In undertaking your review of the audit working papers and financial statements of Ibrahim Brothers for the year ended 31 March 20X8, for each of the above issues:
Problem (i) Comment on the matters that you should consider; and
Problem (ii) State the audit evidence that you should expect to find.