Ican 2026 Advanced Audit Assurance And Forensics Question 7

Jovial Limited was incorporated on November 10, 2022 to carry on the business of investment in real estate. The company’s set up enables it to acquire by purchase, exchange or otherwise, any interest in land and buildings and any form of real estate. The company has a large expanse of land which it currently carries at cost value and in the event of winding up, the value of the land is sufficient to settle the company's liabilities (if any). The trade and other payables mainly comprise of the Directors’ Current Accounts, which were incurred at incorporation of the company. Due to pressing demand from customers for short-let apartments, especially during festive periods, the company has some properties on lease. In the prior period, the lease arrangement had always been treated as an operating lease, whereby periodic lease payments are treated as operating expenses and are expensed on the income statements, and the amounts not paid are treated as payable. In the current year, as part of the risk assessment, the lease payable was reassessed to verify whether it qualifies as an operating or a finance lease. The result of this assessment had an impact on prior year balances, as the standard requires a right-of-use asset and lease liability to be recognised via amortisation and interest expense. The directors of the company have shortlisted some external audit firms for the audit, of which your firm is one. As part of the preparation for presentation to those charged with governance on the audit proposal, some questions that might likely come up have been structured out and your team has been requested to come up with responses.