(i) Revaluation of property, plant and equipment (PPE)
At the beginning of the year, management undertook an extensive review of Elounda Co’s non-current asset valuations and as a result decided to update the carrying value of all PPE. The finance director, Peter Dullman, contacted his brother, Martin, who is a valuer and requested that Martin’s firm undertake the valuation, which took place in August 20X5. (5 marks)
(ii) Inventory valuation
Your firm attended the year-end inventory count for Elounda Co and ascertained that the process for recording work in progress (WIP) and finished goods was acceptable. Both WIP and finished goods are material to the financial statements and the quantity and stage of completion of all ongoing production was recorded accurately during the count.
During the inventory count, the count supervisor noted that a consignment of finished goods, compound E243, with a value of $720,000, was defective in that the chemical mix was incorrect. The finance director believes that compound E243 can still be sold at a discounted sum of $400,000. (6 marks)
(iii) Bank loan
Elounda Co secured a bank loan of $2·6 million on 1 October 20X4. Repayments of $200,000 are due quarterly, with a lump sum of $800,000 due for repayment in January 20X7. The company met all loan payments in 20X5 on time, but was late in paying the April and July 20X6 repayments. (4 marks)
Required:
(a) Describe substantive procedures you should perform. to obtain sufficient, appropriate audit evidence in relation to the above three matters.
Note: The mark allocation is shown against each of the three matters above.
(b) Describe the procedures which the auditor of Elounda Co should perform. in assessing whether or not the company is a going concern. (5 marks)
The versatile compound is endostatin, a human protein that inhibits angiogenesis, the growth of new blood vessels in the body. In tests reported in 1997 by Folkman, a prominent cancer researcher who pioneered the study of angiogenesis, the drug had reduced and even eradicated tumors in laboratory mice. How? By stunting the growth of capillaries necessary for nourishing the burgeoning mouse tumors.
When news of Folkman's achievement became widely known last year, it led to wildly exaggerated predictions of imminent cancer cures. When other scientists were initially unable to duplicate those results, question arose about the validity of folkman's research. Then in February scientists at the National Cancer Institute, with guidance from Folkman, finally matched his results, reassured, the N.C.I. gave the go-ahead for clinical trials of endostation later this year on patients with advanced tumors.
How can a drug that is apparently effective against tumors also reduce the risk of heart attack and stroke? The answer lies in the composition of plaque, the fatty deposit that builds up in arteries and can eventually clog them. Plaque consists of a mix of cholesterol, white blood cells and smooth muscle cells, and as it accumulates, a network of capillaries sprouts from the artery walls to nourish the cell. Could endostatin halt the growth of capillaries and starve the plaque?
A Folkman lab team led by Dr. Karen Moulton decided to find out. The scientists put baby lab mice on a 16-week "western diet" that was high in fat and cholesterol, then measured the plaque buildup on the walls of each aorta, the large artery that carries blood from the heart to the rest of the body. Meanwhile, they inject one group of mice with endostatin, another with a different blood-vessel inhibitor call TNP-470and a control group with an inert saline solution. Twenty weeks later the researchers again measured plague in the mouse aortas. The results were startling: the endostatin group averaged 85% less plaque buildup and the TNP-470 group 70% less than those in the control group.
All too aware of the premature hopes raised last year after Folkman's tumor report, the researchers have been careful not to oversell the new results. "If this finding is supported in future studies," says Moulton, "(it could open the way for) treatments that could delay the progression of heart disease and possible reduce the incidence of heart attacks and strokes." But any such treatments, she stresses, are probably five to ten years away.
Why are the researchers so careful about assessing the results of the new experiment?
A.Because they have no idea what the new medicine can do.
B.Because they only want to use the new medicine for cancer treatment.
C.Because they are not quite sure about the efficacy of the new medicine for heart disease.
D.Because they do not want to sell too much of the new medicine.
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