Biological Assets

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Biological Assets Audit Case Example: ABC Manufacturing Company

Context

If ABC Manufacturing Company holds biological assets, such as crops, livestock, or timber, these assets play a crucial role in its operations and financial performance. The unique characteristics of biological assets, including their transformation through growth, degeneration, production, and procreation, necessitate specific accounting treatments under standards like IAS 41 Agriculture.

Audit Objective

To obtain reasonable assurance that biological assets recorded in ABC Manufacturing Company’s financial statements exist, are controlled by the company, are complete, are valued appropriately considering their biological transformation and market conditions, and are properly presented and disclosed in accordance with the applicable financial reporting framework.

Types of Audit Evidence and Documentation for Biological Assets Assertions

1. Existence

• Case: Verify the physical existence of biological assets through inventory counts or inspections.

• Documentation: Document the procedures for physical verification of biological assets, including the method, timing, and extent of inspection or observation, and any discrepancies noted.

2. Rights and Obligations

• Case: Confirm that ABC Manufacturing Company has legal rights to the biological assets or control over the benefits they produce.

• Documentation: Summarize the review of ownership documents, leases, or contracts that substantiate the company’s rights to and obligations regarding the biological assets.

3. Completeness

• Case: Ensure that all biological assets owned or controlled by the company are included in the financial statements.

• Documentation: Outline the testing of completeness for biological assets, such as reconciling the quantities from physical inspections to accounting records and investigating any variances.

4. Valuation and Allocation

• Case: Assess the valuation of biological assets, considering their current biological condition, costs incurred, and fair value less costs to sell, in accordance with the relevant accounting standards.

• Documentation: Document the assessment of valuation methods and assumptions used, including the basis for determining fair value, considering market prices, costs to sell, and any valuation adjustments