[P7]ACCA考试 一日一练 P7

ACCA考试 一日一练 P7
In April 2005, the company was awarded a new five-year licence, by the central government, to explore for oil in aremote region. The licence was granted at no cost to Shire. However, Shire’s management has decided to recognisethe licence at an estimated fair value of $3 million.The most significant of Shire’s tangible non-current assets are its 17 oil rigs (2004 – 15). Each rig is composed ofnumerous items including a platform, buildings thereon and drilling equipment. The useful life of each platform. isassessed annually on factors such as weather conditions and the period over which it is estimated that oil will beextracted. Platforms are depreciated on a straight line basis over 15 to 40 years.A provision for the present value of the expected cost of decommissioning an oil rig is recognised in full at thecommencement of oil production. One of the rigs in South Asia sustained severe cyclone damage in October 2005.Shire’s management believes the rig is beyond economic recovery and that there will be no alternative but to abandonit where it is. This suggestion has brought angry protests from conservationists.In July 2005, Shire entered into an agreement to share in the future economic benefits of an extensive oil pipeline.You are the manager responsible for the audit of Shire. Last year your firm modified its auditor’s report due to a lackof evidence to support management’s schedule of proven and probable oil reserves to be recoverable from knownreserves.Required:(a) Using the information provided, identify and explain the audit risks to be addressed when planning the finalaudit of Shire Oil Co for the year ending 31 December 2005. (12 marks)

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