Question 2 (5 Marks)

The final materiality figure for the 2021 audit of the Department of Corrections was set at R150 million. During the audit of Capital Assets, the auditors identified misstatements in the valuation of major moveable tangible assets. The financial reporting framework for Departments requires a department to record assets on receipt of the item at cost of acquisition. Where the cost cannot be determined accurately, the asset should be stated at fair value. Where fair value cannot be determined, the asset should be included in the asset register at R1. The Department of Corrections major movable tangible assets as disclosed in disclosure note 35.1 to the financial statements did not in all instances reflect the cost or fair value of the assets and consequently assets were overvalued by R193 million

Discuss the effect of the misstatement identified on the audit opinion.