ANSWER STRUCTURE ON RISK OF MATERIAL MISSTATEMENT

Generally, for 12 marks, you need 12 separate, relevant, markable points

‘I have had challenges because the examiners answer is too long to written within the minutes allocated’

Why are you even bothering to hope to emulate the examiner’s answers? There’s NO WAY that you’re going to get anywhere near them – neither in terms of length nor in terms of content quality.

Accept it! It’s not going to happen

You’re looking for 12 sentences, 2 – 3 lines each, each one of them containing ONE markable point

If that’s 6 separate ideas with an explanation (identify and explain) or

4 separate ideas (identify, explain and illustrate) or even

3 separate ideas with fuller comments about those 3 …

… it doesn’t matter.

So long as you have 12 separate, relevant, markable points!

the scenario is rather brief but immediately springing to my mind are risks associated with:

– supply chain break down

– foreign currency exposure risk

– lack of risk awareness with no forward exchange contracts

The supply chain break down can be further sub-divided into:

– actions beyond our control:

– strikes at the copper mines
– inventory shortages
– too heavy reliance on a single supplier
– inability to source alternative supplies if the existing supplier should let us down
– industrial action anywhere along the route from supplier to Grohls
– risk of variable quality (does copper wire have variable quality?)

– within our control:

– excessive inventory holding tying up resources
– resultant strain on liquidity

Re foreign currency exposure risk

– within our control:

– negotiate contracts at fixed rates of exchange
– hold sufficient inventory to see us through seasonal peaks and troughs
– more effective use of forward exchange contracts

That surely must be the basis of a 12 mark answer

Isn’t it?

‘In accordance to IAS 21-effects of foreign exchange,income and expenses denominated in foreign currency should be re translated at the average rate

Why are you wasting time quoting the IAS number and title? There are NO marks for doing this

Assets and liabilities should denominated in foreign currency should be re translated at the closing rate.

There is a risk that purchases are misstated because an inappropriate foreign exchange rate has been used for re translation purposes.’

Your first 2 points – identifying what the IAS directs as appropriate accounting is not answering the question

The question (unspecified in your posts) concerns Risks of Material Misstatement

Your answer COULD have gone straight in and read something like:

‘There is a risk of material misstatement arising from the translation of transactions from foreign currency to the reporting currency

Purchases, like all line items in the statement of profit or loss, should be translated at the rate that obtained on the date of the transaction (an average rate may be used as a close approximation)

If an inappropriate rate has been used, the cost of sales figure could be materially misstated

This could result in a major distortion of the key ratios of gross and net profitability

Similarly, assets and liabilities could be materially misstated on the statement of financial position if they have been translated at any rate other than closing rate as required by the standard’

Without knowing the precise wording of the question, that’s the sort of length of sentence that I would aim for and you may appreciate that instead of making the standard the main part of the story, my attempt has used the risk of material misstatement as the driver and used the standard as back-up

Does that make sense?