Vama & Associates were appointed as auditors for Royal Constructions Ltd. for the financial year 2023-2024. During the audit, the auditors…

Vama & Associates were appointed as auditors for Royal Constructions Ltd. for the financial year 2023-2024. During the audit, the auditors observed a significant amount of work-in-progress inventory. Instead of attending the physical inventory count, they relied on alternative procedures. These included reviewing production reports, reconciling them with recorded inventory levels, and analysing variance trends to assess the accuracy of the work-in-progress balance. The auditor also noticed that the company has obsolete inventory of 1,75,000, which had an estimated realisable value of 50,000, and the company has valued it at cost in its financial statements. During the review of Property Plan and Equipment (PPE), the audit team noted that the company included - 1,05,000 for employee benefits related to the acquisition of PPE and - 1,25,000 for testing the functionality of the equipment, offset by - 35,000 received from the sale of samples produced during testing. Vama & Associates derive a significant portion of their income from Royal Constructions Ltd., amounting to 10,00,000, which represents 65% of their total annual revenue. Despite finding financial discrepancies of 3,00,000 in the company's accounts, the partners decided to overlook these issues to maintain their lucrative relationship with the client.