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Question pigeon&co

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AAA Exams › Question pigeon&co

  • This topic has 1 reply, 2 voices, and was last updated 7 years ago by Ken Garrett.
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  • July 6, 2018 at 9:13 pm #461166
    zkaay
    Participant
    • Topics: 212
    • Replies: 98
    • ☆☆☆

    Question pigeon&co Its q2 in s/d 17 paper

    Regarding part A

    In examiner answer its written
    “The use of 8% to determine the discount factor rather than 6% will have reduced calue of provision “

    Could u explain this and what should have been done?
    Should we always stick to the older discount factor (here its 6%) ?

    Thats why we are asking why changing and using 8%?

    July 7, 2018 at 8:20 am #461204
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10605
    • ☆☆☆☆☆

    The discounting of the provision is to give as accurate an indication as possible of the PV of the future cost. Changing the rate might be a sensible response to eco omic changes. If so, that’s fine. As it says in the answer, “the audit team must fully understand the reasons for the reduction in the provision”. One reason is a re-estimation of the discount rate. An invalid reason would be changing it arbitrarily to boost profits (an example of creative accounting/fraud).

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