(c) In April 2006, Keffler was banned by the local government from emptying waste water in

(c) In April 2006, Keffler was banned by the local government from emptying waste water into a river because the

water did not meet minimum standards of cleanliness. Keffler has made a provision of $0·9 million for the

technological upgrading of its water purifying process and included $45,000 for the penalties imposed in ‘other

provisions’. (5 marks)

Required:

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,

in undertaking your review of the audit working papers and financial statements of Keffler Co for the year ended

31 March 2006.

NOTE: The mark allocation is shown against each of the three issues.

(c) Ban on emptying waste water(i) Matter■ $0·9m provision for upgrading the process represents 45% PBT and is very material. This provision is alsomaterial to the balance sheet (2·7% of total assets).■ The provision for penalties is immaterial (2·2% PBT