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Hi
If there is are audit risks that company has spent $1.5m on refurbishing supermarkets/ company spent $5m on updating , repairing and replacing machinery used in production/ website of company was upgraded during the year at a cost of $1.1m
For all these 3 audit risk would it be correct to write in explanation that there is a risk that this expenditure is incorrectly treated in financial statements between revenue and capital i.e capital is treated as revenue and revenue is treated as capital
Based on the scenario you have presented, yes, the risk is that expenditure may be misclassified between revenue expense (that should be recognised in profit or loss) and capital expense (that should be recognised as an asset in the SoFP and depreciated).
1) So for all the above 3 risks we can write the same thing which you have mentioned, right?
2) As far as responses are concerned, for all these 3 risks would it be correct to write that Review breakdown of costs and agree to invoices to assess nature of expenditure, if capital then agree to inclusion in asset register and if repairs then agree to income statement?
You are not going to get three things which all have the same issues in one Q – so, for example:
Refurbishment (Sunflower Stores)
Updating, repairing and replacing (Milla Cola)
Website upgrade (Hurling)
The published answers to all these Qs show that the response which you have copied is essentially the same – so I don’t really know why you consider it necessary to ask me.Actually I just want to ask that risk that expenditure may be misclassified between revenue expense (that should be recognised in profit or loss) and capital expense (that should be recognised as an asset in the SoFP and depreciated), Can this be fitted in all that above 3 risks (i.e Sunflower Stores, Milla Cola and Hurling)
And can the response that Review breakdown of costs and agree to invoices to assess nature of expenditure, if capital then agree to inclusion in asset register and if repairs then agree to income statement, be fitted in all that above 3 risks (i.e Sunflower Stores, Milla Cola and Hurling)?
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