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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AA Exams › AUDIT RISK AND RESPONDE
DEAR TUTOR,
CAN YOU EXPLAIN FOR ME THIS AUDIT RISK:
“SALES INCREASE BY 20% AND COS INCREASE 10%
THIS IS A RISK DUE TO INCREASE OF BONUS SCHEME AND ADVERTISING EXPENSES, THIS COULD RESULT IN SALES MAY BE OVERSTATED”
I DON’T QUITE UNDERSTAND WHAT IS THE MATTER IF BONUS SCHEME AND ADVERTISING INCREASE? I THINK IT MAY BE AS A NORMAL
A bonus scheme can give incentives for the directors to overstate profits because their bonuses are likely to be larger.
I don’t quite understand the bit about advertising. It might be getting at the idea that if advertising stimulates sales by 20% you might expect COS to rise by 20% as well. The increase in GP% has not really been explained.