At a meeting to deliberate with management on the draft financial statement of E.T Company Ltd, the external auditors, Sampson Amarty and Co., a firm of Chartered Accountants demanded that management should explain how an amount of GH¢200,000 for land and building in the financial statements had been arrived at. The Managing Director asked the Director of Finance to explain how the amount of GH¢200,000 was arrived at. The Director of Finance explained that the amount of GH¢200,000 was given to them by an external valuer, S.K. Valuation Experts
Required:
Explain the audit procedures that would be adopted in verifying the land and building value in the financial statements.
(7 marks)
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- Verify valuation to valuation certificate.
- Consider reasonableness of valuation by reviewing
- Experience of the valuer
- The scope of work
- Methods and assumptions used
- The objectivity of the valuer
- Check that valuation surplus has been correctly calculated
- Consider whether permanent diminution in value of assets has occurred
- Consider the adequacy of depreciation
- Ensure that the valuation surplus has been correctly treated
- Verify tittle to land and building by inspection of
- Title deeds
- Land registration certificate
- Inspect directors minute book to ensure that all tittle deeds, conveyances, tenancy agreement and lease are properly authorized
- Check sample of entries in the fixed assets register and the trace back to source documentation to ensure they are properly stated
- Review company policies for depreciation and ensure appropriate in the light of the life of the building and ensure that land is not depreciated
- Ensure the assets are properly disclosed in the financial statement
- If freehold or leasehold assets are let to third parties , inspect tenancy agreement and performed analytical procedures on rental income
- Physically inspect a sample of assets
- Ensure that the fixed assets register reconcile with nominal ledger