You are the audit senior with Howard & Associates and have
been assigned to the audit of Beautiful Hair
Ltd (Beautiful Hair).
In early 2019, Beautiful Hair acquired a small manufacturer of high-quality organic hair-styling products,
Shimmer Pty Ltd (Shimmer). Beautiful Hair’s management had identified that Shimmer’s line of products
would fit extremely well with the Beautiful Hair business, and organized funding for the acquisition from
Regional Bank.
Shimmer uses special formulas to create its product. Only the owner of Shimmer knows the secret
ingredients for the formulas. These secret ingredients are apparently documented and held by Shimmer’s
solicitors.
Beautiful Hair’s management has been advised that the intellectual property related to the formulas has the
potential to be both a material and valuable asset and has been recognized as an intangible asset arising
from the acquisition in accordance with accounting standard AASB 3.
Required
(a) Identify and explain the two key assertions most at risk in relation to the intellectual property
intangible asset
(b) Identify and describe a substantive audit procedure that you could perform in response to each risk
identified above
Ltd (Beautiful Hair).
In early 2019, Beautiful Hair acquired a small manufacturer of high-quality organic hair-styling products,
Shimmer Pty Ltd (Shimmer). Beautiful Hair’s management had identified that Shimmer’s line of products
would fit extremely well with the Beautiful Hair business, and organized funding for the acquisition from
Regional Bank.
Shimmer uses special formulas to create its product. Only the owner of Shimmer knows the secret
ingredients for the formulas. These secret ingredients are apparently documented and held by Shimmer’s
solicitors.
Beautiful Hair’s management has been advised that the intellectual property related to the formulas has the
potential to be both a material and valuable asset and has been recognized as an intangible asset arising
from the acquisition in accordance with accounting standard AASB 3.
Required
(a) Identify and explain the two key assertions most at risk in relation to the intellectual property
intangible asset
(b) Identify and describe a substantive audit procedure that you could perform in response to each risk
identified above
