Lamont
You are the manager responsible for the audit of Lamont Co. The company's principal activity is wholesaling frozen fish. The draft consolidated financial statements for the year ended 31 March 20X8 show revenue of $67.0 million (20X7 - $62.3 million), profit before taxation of $11.9 million (20X7 - $14.2 million) and total assets of $48.0 million (20X7 - $36.4 million).
The following issues arising during the final audit have been noted on a schedule of points for your attention.
(a) In early 20X8 a chemical leakage from refrigeration units owned by Lamont caused contamination of some of its property. Lamont has incurred $0.3 million in clean up costs, $0.6 million in modernisation of the units to prevent future leakage and a $30,000 fine to a regulatory agency. Apart from the fine, which has been expensed, these costs have been capitalised as improvements.
(b) While the refrigeration units were undergoing modernisation Lamont outsourced all its cold storage requirements to Hogg Warehousing Services. At 31 March 20X8 it was not possible to physically inspect Lamont's inventory held by Hogg due to health and safety requirements preventing unauthorised access to cold storage areas. Lamont's management has provided written representation that inventory held at
31 March 20X8 was $10.1 million (20X7 - $6.7 million). This amount has been agreed to a costing of Hogg's monthly return of quantities held at 31 March 20X8.
(c) Lamont owns a residential apartment above its head office. Until 31 December 20X7 it was let for $3,000 a month. Since 1 January 20X8 it has been occupied rent-free by the senior sales executive
Required
In undertaking your review of the audit working papers and financial statements of Lamont Co for the year ended 31
March 20X8, for each of the above issues:
(i) Comment on the matters that you should consider; and
(ii) State the audit evidence that you should expect to find.