Choose the most accurate statement regarding the account qua

正确答案：
(b) Financial statement risks
Tutorial note: Note the timeframe. Financial statements for the year to 30 June 2006 are draft. Certain misstatements
may therefore exist due to year-end procedures not yet having taken place.
Revenue/(Receivables)
■ Revenue has increased by 11·8% ((161·5 – 144·4)/144·4 × 100). Overstatement could arise if rebates due to customers
have not yet been accounted for in full (as they are calculated in arrears). If rebates have still to be accounted for trade
receivables will be similarly overstated.
Materials expense
■ Materials expense has increased by 17·8% ((88.0 – 74·7)/74·7 × 100). This is more than the increase in revenue. This
could be legitimate (e.g. if fuel costs have increased significantly). However, the increase could indicate misclassification
of:
– revenue expenditure (see fall in other expenses below);
– capital expenditure (e.g. on overhauls or major refurbishment) as revenue;
– finance lease payments as operating lease.
Depreciation/amortisation
■ This has fallen by 10·5% ((8·5 – 9·5)/9·5 × 100). This could be valid (e.g. if Yates has significant assets already fully
depreciated or the asset base is lower since last year’s restructuring). However, there is a risk of understatement if, for
example:
– not all assets have been depreciated (or depreciated at the wrong rates, or only for 11 months of the year);
– cost of non-current assets is understated (e.g. due to failure to recognise capital expenditure)1;
– impairment losses have not been recognised (as compared with the prior year).
Tutorial note: Depreciation on vehicles and transport equipment represents only 7% of cost. If all items were being
depreciated on a straight-line basis over eight years this should be 12·5%. The depreciation on other equipment looks more
reasonable as it amounts to 14% which would be consistent with an average age of vehicles of seven years (i.e. in the middle
of the range 3 – 13 years).
Other expenses
■ These have fallen by 15·5% ((19·6 – 23·2)/23·2 × 100). They may have fallen (e.g. following the restructuring) or may be
understated due to:
– expenses being misclassified as materials expense;
– underestimation of accrued expenses (especially as the financial reporting period has not yet expired).
Intangibles
■ Intangible assets have increased by $1m (16% on the prior year). Although this may only just be material to the
financial statements as a whole (see (a)) this is the net movement, therefore additions could be material.
■ Internally-generated intangibles will be overstated if:
– any of the IAS 38 recognition criteria cannot be demonstrated;
– any impairment in the year has not yet been written off in accordance with IAS 36 ‘Impairment of Assets’.
Tangible assets
■ The net book value of property (at cost) has fallen by 5%, vehicles are virtually unchanged (increased by just 2·5%)
and other equipment (though the least material category) has fallen by 20·4%.
■ Vehicles and equipment may be overstated if:
– disposals have not been recorded;
– depreciation has been undercharged (e.g. not for a whole year);
– impairments have not yet been accounted for.
■ Understatement will arise if finance leases are treated as operating leases.
Receivables
■ Trade receivables have increased by just 2·2% (although sales increased by 11·8%) and may be understated due to a
cutoff error resulting in overstatement of cash receipts.
■ There is a risk of overstatement if sufficient allowances have not been made for the impairment of individually significant
balances and for the remainder assessed on a portfolio or group basis.
Restructuring provision
■ The restructuring provision that was made last year has fallen/been utilised by 10·2%. There is a risk of overstatement
if the provision is underutilised/not needed for the purpose for which it was established.
Finance lease liabilities
■ Although finance lease liabilities have increased (by $1m) there is a greater risk of understatement than overstatement
if leased assets are not recognised on the balance sheet (i.e. capitalised).
■ Disclosure risk arises if the requirements of IAS 17 ‘Leases’ (e.g. in respect of minimum lease payments) are not met.
Trade payables
■ These have increased by only 5·3% compared with the 17·8% increase in materials expense. There is a risk of
understatement as notifications (e.g. suppliers’ invoices) of liabilities outstanding at 30 June 2006 may have still to be
received (the month of June being an unexpired period).
Other (employee) liabilities
■ These may be understated as they have increased by only 7·5% although staff costs have increased by 14%. For
example, balances owing in respect of outstanding holiday entitlements at the year end may not yet be accurately
estimated.
Tutorial note: Credit will be given to other financial statements risks specific to the scenario. For example, ‘time-sensitive
delivery schedules’ might give rise to penalties or claims, that could result in understated provisions or undisclosed
contingent liabilities. Also, given that this is a new audit and the result has changed significantly (from loss to profit) might
suggest a risk of misstatement in the opening balances (and hence comparative information).
1 Tutorial note: This may be unlikely as other expenses have fallen also.

正确答案：C
解析：auditor审计员。balance sheet资产负债表。statement of income and expenditure损益表。income and expenditure支出和收入。a true and fair view of the business对公司真实公平的看法。reserves储备金。

正确答案：A

正确答案：B

参考答案：A

正确答案：C
答案为C。文中体现了作者的正面态度。impractical意为“不切实际的”，原文未提； radical意为“激进的”与原文相反；选项D与原文不符。

参考答案：A

正确答案：
(b) Financial statement ratios can provide useful measures of liquidity but an analysis of the information in the cash flow
statement, particularly cash flow generated from operations, can provide specific insights into the liquidity of Warrburt. It is
important to look at the generation of cash and its efficient usage. An entity must generate cash from trading activity in order
to avoid the constant raising of funds from non-trading sources. The ‘quality of the profits’ is a measure of an entity’s ability
to do this. The statement of cash flow shows that the company has generated cash in the period despite sustaining a
significant loss ($92m cash flow but $21m loss). The problem is the fact that the entity will not be able to sustain this level
of cash generation if losses continue.
An important measure of cash flow is the comparison of the cash from operating activity to current liabilities. In the case of
Warrburt, this is $92m as compared to $155m. Thus the cash flow has not covered the current liabilities.
Operating cash flow ($92 million) determines the extent to which Warrburt has generated sufficient funds to repay loans,
maintain operating capability, pay dividends and make new investments without external financing. Operating cash flow
appears to be healthy, partially through the release of cash from working capital. This cash flow has been used to pay
contributions to the pension scheme, pay finance costs and income taxes. These uses of cash generated would be normal for
any entity. However, the release of working capital has also financed in part the investing activities of the entity which includes
the purchase of an associate and property, plant and equipment. The investing activities show a net cash outflow of
$43 million which has been financed partly out of working capital, partly from the sale of PPE and AFS financial assets and
partly out of cash generated from operations which include changes in working capital. It seems also that the issue of share
capital has been utilised to repay the long term borrowings and pay dividends. Also a significant amount of cash has been
raised through selling AFS investments. This may not continue in the future as it will depend on the liquidity of the market.
This action seems to indicate that the long term borrowings have effectively been ‘capitalised’. The main issue raised by the
cash flow statement is the use of working capital to partially finance investing activities. However, the working capital ratio
and liquidity ratios are still quite healthy but these ratios will deteriorate if the trend continues.

正确答案：C

答案：D

解析：