Nova Land Development Corporation is a closely held corporation engaged in purchasing large tracts of land, subdividing the tracts, and installing paved streets and utilities. The Corporation does not construct buildings for the buyers of the land and does not have any affiliated construction companies. Undeveloped land usually is leased for farming until the corporation is ready to begin developing it.
The Corporation finances its land acquisitions by mortgages; the mortgagees require audited financial statements. This is your first audit of the company, and you have now begun the audit of the financial statements for the year ended December 31.
Required: The Corporation has three tracts of land in various stages of development. List the audit procedures to be employed in the verification of the physical existence and title to the corporation's three landholdings.
The author has presented a problem with more issues than were needed. Following are some of the issues, as I see them:
1. First year audit may require a qualified or disclaimed opinion
2. Incidental activities with respect the land may or may not influence the presentation and disclosure
3. Are any of the transactions relating to the land purchases involved in related party transactions
4. Is it an active trade or business to develop the land, ...
The solution includes a list of seven procedures to be applied in the identification and verification of fixed asset - land. In addition, the solution has a list of seven comments about the industry and the accounting methods applied.