[fawakhry]

@mogorosi said:
Hi guys,

I see a number of you discussing risk of material misstatement (Q1b)

I am not going to discuss the whole paper but please note that the question wanted 4 “SIGNIFICANT” risk of material misstatements.
These are risk that require special audit attention and involves risk relating to fraud, complex transactions, related party transactions, transactions involving high degree of subjectivity.

So, for example fuel derivatives as a risk would qualify as a significant ROMM as it should be done in accordance with IFRS 9/ IAS 39 which is a complex standard for both management and the auditor

Inventory would also qualify as it related to fraud (misappropriation of assets). Though the amount of inventory stolen was immaterial at about $12 500 the scenario stated that management were worried that the problem might be broader which then meant that as an auditor you needed to consider the possibility of inventory stolen being material. Thus your inventory being overstated and inventory write off understated

Having mentioned the above, this makes risk like the IAS 23 borrowing costs that I see a significant minority of you talking about, being not relevant to what was asked. (i.e interest to be capitalised not a complex calculation, not estimations, no fraud, etc).
Again IAS 23 is made more irrelevant to fact that IAS 23 relates to assets being constructed, were capitalisation of interest is over the construction period. Information in the scenario said the aircrafts were purchased from a supplier, which means the was no period over which the company needed to capitalise the interest.

IFRS 8 was also not relevant as this is a disclosure requirement and the question explicitly instructed you not to include risks relating to disclosures

There is a risk in both ways.
If the asset is under construction, there is a risk of not capitalizing financial expenses over the cost of under construction airplanes, leading to overstatement of expenses and understatement of non-current assets.

If the asset is ready for use, there is a risk of capitalizing financial expenses …. and so on. (this part is related to fraudulent financial reporting due to management bias)

I guess stating that the loan was specifically borrowed for financing the airplanes transaction is so obvious there is a risk associated with interest.

[fawakhry]

Passed with 58% 2nd attempt, in this sitting I focused on OT lecture notes, technical articles and going through all of Section B questions in the exam kit.

OT lecture notes helped me a lot and the technical articles widen your understanding of the paper, very very very very important to read the technical articles.

Alhamdulilah and good luck for those who did not make it this time, inshallah you will do much better in next sitting.

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