RISK ASSESSMENT

Risk identification and impact for Fixed assets does not exist at auditing time

Answer explanation

There is a risk that FS reflect fixed assets not existing at the year end

=> This could overstate amount of fixed asset and depreciation

Risk identification and impact for Unqualified expenses are capitalized to fixed assets instead of recording expenses in P&L statement

Answer explanation

There is a risk that the expenditures which do not meet the capitalization criteria (IAS 38) are still capitalized in the cost of fixed asset

=> This could overstate the amount of fixed assets and understate the amount of expense, which result to higher profit than normal

Risk identification and impact for No recognition of disposal assets

Answer explanation

There is a risk that fixed assets which is already disposed but not removed from fixed assets register

=> This could lead to the overstatement of fixed asset's balance on the FSs

Risk identification and impact for Mortgaged assets for a loan

Answer explanation

There is a risk that the mortgaged assets for a loan are not disclosed in the FSs

=> This could result in lack of presenting information of risk associated to the mortgaged assets

=> inpact về khoản trình bày thông tin

Risk identification and impact for Changing depreciation time and method due to incentive or profit pressure

Answer explanation

There is a risk that depreciation reduction has occurred in order to achieve profit target or incentive bonus

=> If this is the case, the PPE is overvalues and the profit is overstated

Risk identification and impact for Fixed assets are revalued due to pressure from loan covenant

Answer explanation

The risk increase in this case is that the company has to assure a minimum asset value level because of the loan covenant

The value of the asset is overstated after revaluation

Response to risk of Fixed assets does not exist at auditing time

Response to risk of Unqualified expenses are capitalized to fixed assets instead of recording expenses in P&L statement

Answer explanation

Compare expense between 2 period and discuss with management of reason for significant fluctuation

Review a breakdown of the costs and agree to invoices to assess the nature of the expenditure if these expenses could meet the capitalization criteria (IAS16, IAS38)

Agree the reviewed amount of capital expenditure to the asset register and agree the amount of repairs expenses to the income statement

Response to risk of No recognition of disposal assets

Answer explanation

Review the NCA register to ensure that the asset register to ensure that the disposal asset has been removed

Also confirm the disposal proceeds/cash receipt in the bank statement and recalculating the profit on disposal

Response to risk of Mortgaged assets for a loan

Answer explanation

Review the loan agreement to examine whether any assets has been pledged as collateral

A confirmation letter may also be sent to the bank to ascertain whether any assets have been pledged or encumbered as collateral with this institution