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It addresses capitalisation of development expenditure under IAS 38, including verification of intention, technical feasibility, resources, ability to measure costs, and evidence supporting amortisation periods. It also covers inventory valuation using IAS 2 standard costing, responding to risks from outdated standards, and audit procedures for inventory existence, completeness, and system changeover controls to prevent misstatements.",{"@graph":69,"@context":116},[70,84,99],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":20,"@type":76,"position":81},"https://docshare.wps.com/document/exam/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/chief-examiners-report-november-2024-advanced-audit-and-assurance/180684/",{"url":83,"name":65,"@type":85,"author":86,"headline":65,"publisher":89,"fileFormat":92,"inLanguage":63,"description":67,"dateModified":93,"datePublished":93,"encodingFormat":92,"isAccessibleForFree":94,"interactionStatistic":95},"DigitalDocument",{"name":87,"@type":88},"นรินทร์","Person",{"url":74,"name":90,"@type":91},"DocShare","Organization","application/pdf","2026-09-02",true,{"@type":96,"interactionType":97,"userInteractionCount":4},"InteractionCounter",{"@type":98},"ViewAction",{"@type":100,"mainEntity":101},"FAQPage",[102,108,112],{"name":103,"@type":104,"acceptedAnswer":105},"What audit risk is raised by capitalising development expenditure without meeting IAS 38 criteria?","Question",{"text":106,"@type":107},"The risk is that development costs are capitalised when not all criteria are met, which can overstate assets and profits. Auditors should obtain evidence that each IAS 38 condition has been satisfied.","Answer",{"name":109,"@type":104,"acceptedAnswer":110},"How should auditors respond when a company uses standard costing for inventory but never updates the standard costs?",{"text":111,"@type":107},"Auditors should compare standard costs against actual costs for an appropriate sample of items. Significant variations should be discussed with management to support that inventory is fairly stated.",{"name":113,"@type":104,"acceptedAnswer":114},"What procedures should auditors perform when new financial software was not run in parallel with the old system?",{"text":115,"@type":107},"Auditors should fully document relevant controls and test that closing data from the old system was correctly transferred as opening data in the new system. They should also confirm transactions were not duplicated across both systems.","https://schema.org",{"og:url":83,"og:type":118,"og:title":65,"og:site_name":90,"og:description":67},"article",{"robots":120,"canonical":83},"index,follow",{"doc_id":122,"site_id":62},180684,1788341747,{"code":4,"msg":5,"data":125},{"doc_id":122,"user_id":126,"nickname":87,"user_avatar":127,"doc_module":4,"category_id":19,"category_name":20,"doc_title":65,"doc_description":67,"doc_content":128,"file_id":129,"file_url":130,"file_type":131,"file_size":132,"view_count":4,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":133,"language":134,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":135,"faqs":136,"seo_title":137,"seo_description":67,"update_tm":123,"read_time":26},2336475104957,"https://ap-avatar.wpscdn.com/avatar/22000c4c6bd8a5076e1?x-image-process=image/resize,m_fixed,w_180,h_180&k=1787554080175789136","| Audit risk | Auditor's response |\n| --- | --- |\n| 1. The finance manager wants to capitalise GH¢3.5 | 􀁸 The auditor should obtain audit evidence to |\n| million development expenditure. IAS 38 specifies the | confirm that each criterion has been met. |\n| conditions that must exist for development costs to be | 􀁸 The auditor should look at the test results of the |\n| capitalised. The conditions are: | project to date. |\n| 􀁸 Intention to complete the development and | 􀁸 The auditor should look for evidence from market |\n| either use or sell the developed item | research about the likely demand for their |\n| 􀁸 Technical feasibility of completing the | product. |\n| development and the ability of the entity to use | 􀁸 The auditor can look at actual sales since the |\n| the developed item or sell it | product launch and discuss with management |\n| 􀁸 Ability to create future economic benefits | whether these appear to support the estimated |\n| 􀁸 Availability of technical, financial and other | amortisation period for the development costs. |\n| resources to complete the development | 􀁸 An analysis showing development costs for each |\n| 􀁸 Ability to measure the costs attributable to the | product should be obtained and reviewed. |\n| intangible asset. | 􀁸 Testing should be carried out to ensure the |\n| The audit risk is that development costs have been | technical and commercial feasibility of each |\n| capitalised when not all of the criteria for | product and, where it cannot be proven that future |\n| capitalisation have been met. This will mean assets | economic benefits will result from the product |\n| and profits are overstated. | developed, the related costs should be expensed. |\n| 2. Ecowud Co LTD uses standard costing to value inventory. According to IAS 2, the standard cost may be used for the measurement of cost, provided that the results approximate the actual cost. The company has never updated its standard cost; this may lead to a risk that standard costs are out of date. If they are, this could mean inventory is over-or undervalued in the statement of financial position. | Standard costs used for inventory valuation should be compared to actual costs for an appropriate sample of inventory items. Any significant variations should be discussed with management to gain evidence that thevaluation is reasonable and that inventory is fairly stated. |\n| 3. The new software was not run in parallel with the old one, this poses a risk that errors that may occur during the changeover will not be highlighted, and all areas of the financial statements could potentially be misstated. | 􀁸 The new system will need to be fully documented by the audit team including relevant controls.\u003Cbr>􀁸 Testing should be performed to ensure the closing data on the old system was correctly transferred as the opening data on the new system, and that transactions have not been duplicated on both systems and therefore included twice. |\n| 4. The warehouses storing finished goods are rented and | 􀁸 Obtain sufficient and appropriate audit evidence |\n| belong to a third party. There is the risk of the | to confirm the quantities of inventory held in |\n| existence and completeness of inventory quantities | these locations to verify existence and |\n| held in these locations | completeness. |","cbCaioSxVO7yp4XT","https://ap.wps.com/l/cbCaioSxVO7yp4XT","pdf",1096779,24,"English","# Audit Risk Management\n## IAS 38 Development Expenditure Capitalisation\n## IAS 2 Standard Costing for Inventory Valuation\n## IT System Changeover and Control Testing\n## Inventory Stored at Third-Party Warehouses","[{\"question\":\"What audit risk is raised by capitalising development expenditure without meeting IAS 38 criteria?\",\"answer\":\"The risk is that development costs are capitalised when not all criteria are met, which can overstate assets and profits. Auditors should obtain evidence that each IAS 38 condition has been satisfied.\"},{\"question\":\"How should auditors respond when a company uses standard costing for inventory but never updates the standard costs?\",\"answer\":\"Auditors should compare standard costs against actual costs for an appropriate sample of items. Significant variations should be discussed with management to support that inventory is fairly stated.\"},{\"question\":\"What procedures should auditors perform when new financial software was not run in parallel with the old system?\",\"answer\":\"Auditors should fully document relevant controls and test that closing data from the old system was correctly transferred as opening data in the new system. They should also confirm transactions were not duplicated across both systems.\"}]","Chief Examiners Report - November 2024 - Advanced Audit and Assurance | PDF"]