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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.
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