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The website was launched in 20X0 and has consistently encountered difficulties with customer complaints that tickets have been booked and paid for online but Donald Co has no record of them and hence has sold the seat to another customer. Donald co operates an airline business (for ur info)
This is an extract from a qs asking to identify audit risk and provide resposne
Risk- risk of not excluding refunds made to customers and hence may overstate the revenue.
Response- review refund payments made and trace them to revenue to ensure they r not included
1 Not knowing what refunds are due (as you say)
2 There might also be penalty payments if passengers are denied boarding
3 In some countries there might be regulatory penalties also.
All of the above could understate liabilities. The fact that they sell seats more than once will overstate revenue also.
You response is OK as far as it goes, but we need to know if there are refunds due but not recognised nor made at year end.
Suggest you look at refunds to customer in the first couple of months after year end to ensure that, if these relate to seats before year end, liabilities have been set up and the amounts excluded from sales.
This is an extract of another qs
Sunflower has spent $1.6 million in refurbishing all of its supermarkets; as part of this refurbishment programme their central warehouse has been extended and a smaller warehouse, which was only occasionally used, has been disposed of at a profit. In order to finance this refurbishment, a sum of $1.5 million was borrowed from the bank. This is due to be repaid over five years.
Risk-The 5 year loan of $1.5m from the bank may have been incorrectly analysed between current and noncurrent liabilities.
Response-review the general ledger for non current liabilities to ensure proper allocation is made for the loan and trace it to the financial statements
Is this an appropriate response?
i feel the response is not perfrct and will it be correct if the risk is changed as”there r chances for the loan to be recorded as a current liability resulting in an overestimatn of current liability n understatment of non current liabiltiy
So as per wht u said can we sy ther r chances for refunds made to customers not being recorded in the correct period thereby understating/overstating cash(current asset) and sales as an audit risk?
Other risks include: Warehouse: risk that expenditure not properly classifies revenue/capital
Risk of wrongly calculated profit/loss on disposal
Risk that cash inflow not,from sale of warehouse at all
Sold wh should be excluded from fs.
Interest on loan not accrued.
In general, most events will give rise to more than one risk. I don’t know where you get the questions, but their model answers should list the risks ans responses.
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