Work in Progress Jackdaw undertakes continuous production of cars, 24 hours a day, and seven days a week. An inventory count is to be undertaken at the year end and Puffin & Co will attend. You are responsible for the audit of work in progress (WIP) and will be part of the team attending the count as well as the final audit. WIP constitutes the partly assembled cars at the year end and this balance is likely to be material. Jackdaw values WIP according to percentage of completion, and standard costs are then applied to these percentages.
(a) Explain the factors Puffin & Co should consider when placing reliance on the work of the independent valuer.
(b) Describe the substantive procedures the auditor should perform to obtain sufficient and appropriate audit evidence in relation to:
(i) The revaluation of land and buildings and the recently purchased warehouse; and
(ii) The valuation of work in progress.
(c) During the audit, your team has identified an error in the valuation of work in progress, as a number of the assumptions contain out of date information. The directors of Jackdaw have indicated that they do not wish to amend the financial statements.
Required:Explain the steps Puffin & Co should now take and the impact on the audit report in relation to the directors’ Refusal to amend the financial statements.