ExpertACCA · Question 14 · 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:
Regarding the $5m revaluation surplus on the manufacturing plant, which of the following procedures should the auditor perform?
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:
Regarding the $5m revaluation surplus on the manufacturing plant, which of the following procedures should the auditor perform?
Answer options:
Recalculate the revaluation surplus by estimating the market value of the plant themselves.
Assess the competence, capabilities, and objectivity of the independent valuer used by AeroForge.
Ensure the $5m surplus has been recognized as revenue in the statement of profit or loss.
Request that management reverse the revaluation as it is not permitted under IFRS.
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