3 You are the manager responsible for the audit of Seymour Co. The company offers informat

medical innovations designed to improve the quality of life. (Proprietary foods are marketed under and protected by

registered names.) The draft consolidated financial statements for the year ended 30 September 2006 show revenue

of $74·4 million (2005 – $69·2 million), profit before taxation of $13·2 million (2005 – $15·8 million) and total

assets of $53·3 million (2005 – $40·5 million).

The following issues arising during the final audit have been noted on a schedule of points for your attention:

(a) In 2001, Seymour had been awarded a 20-year patent on a new drug, Tournose, that was also approved for

food use. The drug had been developed at a cost of $4 million which is being amortised over the life of the

patent. The patent cost $11,600. In September 2006 a competitor announced the successful completion of

preliminary trials on an alternative drug with the same beneficial properties as Tournose. The alternative drug is

expected to be readily available in two years time. (7 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 Seymour Co for the year ended

30 September 2006.

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