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material misstatement and others

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › material misstatement and others

  • This topic has 5 replies, 2 voices, and was last updated 11 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
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  • June 18, 2014 at 2:32 pm #176985
    kat
    Member
    • Topics: 11
    • Replies: 13
    • ☆

    Q1. Is it by nature that restructuring will have a high risk of material misstatement?

    Q2. why is it that not all assets and liabilities are recognised in the financial statements other than internally generated assets?

    Q3. Why do auditors need to know the register of shareholders?

    Q4. Is it true that intra group sales, purchases, payables and receivables which are not eliminated can lead to overstate or understate of revenue, cost of sales, payables and receivable?

    Thanks in advance for answering my questions.

    June 22, 2014 at 9:12 am #177382
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    Q1. Is it by nature that restructuring will have a high risk of material misstatement?

    I don’t know where you may have read this but I suppose it’s a fair enough observation. Where a company is undergoing a re-structuring exercise there will normally be a lot of estimation and settlement negotiations involved so I suppose you could summarise the exercise as having a natural high risk of material misstatement

    Q2. why is it that not all assets and liabilities are recognised in the financial statements other than internally generated assets?

    I genuinely do not understand this question! The way the question is worded suggests “that not all assets and liabilities are recognised in the financial statements other than internally generated assets (which are all reflected, is the implication of the wording of your question)

    Q3. Why do auditors need to know the register of shareholders?

    To be able to assist in identification of related parties, insider dealing, multiple share applications in a public offer, substantial shareholdings which need to be disclosed in financial statements…. Any others?

    Q4. Is it true that intra group sales, purchases, payables and receivables which are not eliminated can lead to overstate or understate of revenue, cost of sales, payables and receivable?

    Of course it’s true! When, on consolidation, we find that one group company has sold goods to another group company, then failure to eliminate will inflate the revenue reported by the group and, at the same time, inflate the cost of sales reported by the group.

    Remember that the process of consolidation is to present the results of a group of companies as though they were the results of a single entity. Without elimination, it’s as though you were selling to yourself and buying from yourself.

    June 24, 2014 at 5:57 am #177516
    kat
    Member
    • Topics: 11
    • Replies: 13
    • ☆

    Q2. Is it possible that not all the assets and liabilities are recognisied in the finanical statements? So far i only know that internally generated goodwill are not recognisied in the finanical statements? Is it clearer this way?

    June 24, 2014 at 9:11 am #177524
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    That’s much clearer – and now it makes sense

    🙂

    Generally, any internally generated intangible asset is not recognised – for example, brand names, intellectual property and copyright

    As for liabilities, that depends upon the probability of the likelihood that the potential obligation will actually materialise. So liabilities with an occurrence probability of less than 50% will only be disclosed as contingent rather than recognised as obligations

    Ok?

    June 27, 2014 at 12:02 pm #177769
    kat
    Member
    • Topics: 11
    • Replies: 13
    • ☆

    ok. thank you.

    June 27, 2014 at 2:41 pm #177776
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    You’re welcome

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