ExpertACCA · Question 11 · Audit and Assurance
CASE 3: AEROFORGE HEAVY INDUSTRIES
AeroForge Heavy Industries manufactures industrial turbines. The manufacturing process takes 8 months per turbine. At year-end, there is significant Work-in-Progress (WIP). AeroForge provides a 5-year warranty on all turbines. During the year, a major customer sued AeroForge for $2m due to a turbine failure; AeroForge's lawyers believe a payout is 'possible' but not 'probable'. AeroForge revalued its manufacturing plant this year, resulting in a $5m revaluation surplus.
QUESTION:
Which of the following audit procedures would provide the most appropriate evidence to confirm the percentage of completion of the Work-in-Progress (WIP) at year-end?
CASE 3: AEROFORGE HEAVY INDUSTRIES
AeroForge Heavy Industries manufactures industrial turbines. The manufacturing process takes 8 months per turbine. At year-end, there is significant Work-in-Progress (WIP). AeroForge provides a 5-year warranty on all turbines. During the year, a major customer sued AeroForge for $2m due to a turbine failure; AeroForge's lawyers believe a payout is 'possible' but not 'probable'. AeroForge revalued its manufacturing plant this year, resulting in a $5m revaluation surplus.
QUESTION:
Which of the following audit procedures would provide the most appropriate evidence to confirm the percentage of completion of the Work-in-Progress (WIP) at year-end?
Answer options:
Review the sales contracts to determine the final selling price of the turbines.
Vouch the cost of raw materials issued to the production line to material requisition notes.
Discuss the stage of completion with the production manager and observe the physical condition of the turbines on the factory floor.
Recalculate the depreciation charge for the factory machinery used to build the turbines.
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