: Abbey Plc - Case Study Example

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There are business operations in the United Kingdom, Ireland and the Czech Republic. The core activities carried out by the company are the development…
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Case Study: Abbey Plc
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Download file to see previous pages nature of the operations of Abbey Public Limited Company involves transactions that would require estimations, assumptions and significant amounts of money (Chambers and Rand, 2011).
The inventories of Abbey Public Limited Company are an area of heightened audit risk. The components of Company inventories are the Building Land and roads, the Work in Progress and the Raw materials. From the financial statements, a 33.44% increase in the stocks has been reported. The stocks are reported at 120,641,000 Pounds in 2014 compared to the 90,408,000 pounds reported in 2013. The indication is that inventories have tremendously grown over the reporting period. With relation to the Building Land and Roads, it must not be assumed that proper values have been reported. There is a risk that the proportion of plots sold in the case of estates could have been overstated. The auditor has an obligation to verify that the balance of building land and roads reported is the actual value by reconciling the balance against the proportion sold. The impairment of building land and roads being reported as an expense in the income statement is a question of proper adoption of financial reporting policies. The auditor should verify the impairment charge of 162,000 pounds by investigating the methods used in making provisions for the impairment charge (Knapp, 2012).
The work in progress of the Company comprises the material cost and the direct labour cost. It is prevalent that the cost attributable to the direct work and the material cost can be overstated if care is not exercised. The auditor has a duty to verify the allocation of direct labour cost and material cost between the finished inventory and the work in progress. Raw materials are said to be reported on a net invoice price. The compounding of the value of stock poses a significant risk. Ascertainment of the value attributable to the raw materials and other components of inventory is significantly necessary (Knapp, 2013).
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