Audit risk and Response

Be wary of “generic answers” – it will always depend on the specifics of the Q – for example, whether the R&D costs are being expensed (when D should be capitalised) or capitalised (when R should be expensed). See, for example, Milla Cola in the Specimen exam.

Repairs and maintenance costs will be overstated if the expense should have been capitalised – conversely the risk is understatement if revenue costs are being capitalised in appropriately. See, for example, Q16 Darjeeling in the S/D18 Sample questions which has maintenance cost included in the cost of an asset.