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Matty Co

Matty Co ACCA AAA answer

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Purab Kataria
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153 views2 pages

Matty Co

Matty Co ACCA AAA answer

Uploaded by

Purab Kataria
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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11/24/24, 6:44 PM about:blank

A) Matters and Evidence

Railway Operating Licences

The principal matter raised by the unresolved status of the licence tender is the potential impact on Matty Co
financial performance and financial position if the company is unsuccessful in the tender process.
This in turns creates uncertainities in relation to the going concern status of the company.

The licence is due for renewal on 28th February 20x6 which is 11 months from the reporting date.
Although the company has been informed that it is preferred bidder, there are still significant doubt as to
whether the licence will be renewed given the government requirement that the company address the recent
criticism and the pending review in one month time.

The revenue generated from the national railway licence represents 67% of Matty co revenue for year and is
highly material to the company statement of profit or loss for the year.

It is also signficant that the national railway licence contributed profit before tax of $11.2 million which is
106.7% of this year profit, without this contribution to the company profit this year.

It may be indicative that business is struggling to renew its capital expenditure and maintains its liquidity.

There is a risk of inadequate disclosure of the going concern uncertainities.

Evidence:-

A review of the press report in relation to the late running of Matty co trains and the quality to its
service.
A review of any correspondence files between Matty co and the government transport department in
order to identify any development in the licence renewal process.
Notes of discussion held between the auditor and the management of Matty Co in relation to any
contingency plan.
A review of the company board minute for evidence of management discussion of the status of the
tender process.

Purchased Customer List

The carrying amount of the customer list purchased from Jess Coaches is highly material to Matty Co draft
statement of financial position at 24.3% of total assets.

A reporting entity should recognise intangible asset initially at cost and should assess whether an intangible
asset useful life is finite or indefinite.

An assessment of a useful life as indefinite is only appropriate if on an analysis of all of the relevant factors,
there is no foreseeable limit to the period over which is intangible is expected to generate net cash inflow for
the entity.
In this case, there is no foreseeable limit to the period over which the purchased customer list can be expected
to generate cash flows.
Intangible asset with an indefinite life should not be amortised according to IAS 38.

IAS 38 requires a reporting entity to test intangible asset with an indefinite useful life annually for
impairment.

Management assumption of value in use of $7.2 million appears to be close to the asset carrying amount of
$6.9 million and it is possible that management may have manipulated its assumption to avoid the
recognition of impairment loss.

Evidence:-

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A copy of the purchase agreement to identify the details of the acquisition including purchase
consideration, the asset acqcuired and the date of acquisition.
Agreement of the purchase consideration of $6.9 million to the company bank ledger and bank
statemnet to confirm the purchase price.
A review of Jess coaches trading history and any market research which has been performed on the
ability of the purchased customer list.
A review and assessment of the company cash flow forecast which has been used to support the value
in use of $7.2 million agreed to value in calculation.
A sensitivity analysis performed by the auditor varying these key assumptions.
Written representation from management confirming that to the best of its knowledge, the assumption
used in the calculation of value in use are reasonable and appropriate.

B) Appropriateness of the Draft Auditor Report

The finance director has agreed to include a short note to the financial statement to disclose the information
relating to material uncertainty related to going concern.

The form of the opinion would be qualified 'except for' or adverse depending on the auditor judgement of the
matter pervasiveness to the financial statement.
In this case, adverse may be appropriate form of audit opinion given that the disclosure note is described as
short.

Matty co is a listed entity, KAM disclosure are required in the auditor report for high risk areas, significant
judgement and effect of significant event or transaction during period.

The assessment of the useful life of the customer list as indefinite and management conclusion that the
intangible asset are not impaired are areas of both significant judgement and high risk given their materiality.
The auditor should consider disclosing these matter in the KAM section of the auditor's report.

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