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1. Should I say, for example, “Revenue could be overtstated” or “Revenue could be overstated and liability could be understated”? Will both receive the same mark? If no, meaning I have to state Dr. and Cr. of possible misstatement?
2. Should I specifically say “Deferred Income” or simply say “Liability” for my answer?
I can’t give you any rule here. Look at the examiner’s answers. Sometimes it will just say “xxx may be overstated”. Other times it may say “xxx may be overstated and yyy may be overstated”.
I think that the latter is preferable only where you know what the other side of the entry would be. In your example “Revenue could be overstated and liability could be understated” – do you know that the other side of the entry affects a liability rather than receivables? Or should it be ““Revenue could be overstated and hence receivables could be overstated”?
Note that when talking about the risk of understatement of an expense the examiner may write that “profit may be overstated and (current) liabilities understated”.I think I am referring to deferred income.i if revenue is recognized too early, then both Revenue and Deferred Income are overtstated.
In the absence of any reference to a specific question it looks as though you are confused. “Deferred income” (which isn’t a term in IFRS) is revenue that is NOT recognised – it is a credit balance in SoFP. So, for example, if a company received an advance payment for a later supply of goods or services the double entry would be Dr Cash and Cr Deferred income. When the goods/services are supplied the revenue can be recognised so Dr Deferred income and Cr Revenue.
Revenue (recognised in profit or loss) and deferred income (recognised in SoFP) are both credits – so they cannot both be overstated.
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