SAICA ITC JUNE 2022 SUGGESTED SOLUTION PAPER 1 PART I summarised

 Part (d) Discuss five concerns that you may have relating to the accounting treatment and disclosures in respect of Beeprop’s investment properties. For each concern, provide the treatment that the management should have followed.

  Limit your discussion to issues in sections 2, 3 and 4 for which there is evidence of inaccuracies, inconsistencies, errors in application and/or non-compliance with IFRS in the scenario. 

 Exclude items not disclosed in the extracts.  Ignore all tax implications.

answer

Beeprop, a property company, is being audited. Key issues include:

• Investment Property Valuation

• Right-of-Use (RoU) Asset

• Abnormal Costs

• Lease Liability Misclassification

• Related party transactions (townhouses)

• VAT implications of conversions

• construction starting without zoning approval.

Beeprop, a property company, is being audited. Key issues include:

• Investment Property Valuation: High uncertainty due to COVID-19 and office vacancies, despite management claiming "no uncertainties." Auditors must verify the expert valuer's work thoroughly.

• Right-of-Use (RoU) Asset: A new leased office building (subleased as investment property) requires detailed audit of its initial recognition, valuation, and correct classification.

• Abnormal Costs: Concerns about capitalizing R5.78 million in unusual construction costs.

• Lease Liability Misclassification: A R343,874 current liability is shown as non-current. This small amount qualitatively impacts the working capital ratio, requiring auditor judgment on modifying the report.

• Other Risks: Related party transactions (townhouses), VAT implications of conversions, and construction starting without zoning approval.

The audit focuses on skeptical review of management assertions, expert reports, and ensuring compliance with IFRS, with potential implications for the audit opinion based on materiality assessments.