You have obtained the following information: STATEMENT OF COMPREHENSIVE INCOME F
ID: 2412159 • Letter: Y
Question
You have obtained the following information:
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR TO 31 DECEMBER
20X8
20X7
Note
Draft ($m)
Actual ($m)
Revenue
(1)
645.5
606.5
Other income
(2)
15.6
14.4
Changes in inventories
3.8
(16.4)
Cost of materials
(334.1)
(286.8)
Employee benefits expense
(91.0)
(83.9)
Depreciation
(3)
(29.8)
(23.6)
Other expenses
(4)
(116.3)
(100.6)
Interest income, net
(5)
12.3
(20.9)
Profit before tax
106.0
130.5
Income tax expense
(44.4)
(47.7)
Profit for the year
61.6
82.8
STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER
20X8
20X7
Note
Draft ($m)
Actual ($m)
Assets
Non-current assets
Intangible assets
(6)
47.8
40.5
Property, plant and equipment
(7)
124.5
102.5
172.3
143.0
Current assets
Inventories
(8)
30.3
27.9
Trade receivables
73.1
50.3
Cash and cash equivalents
111.4
86.0
Total assets
387.1
307.2
Equity and liabilities
Equity
5.8
5.8
Share capital
15.3
15.3
Share premium
112.1
80.1
Retained earnings
133.2
101.2
Non-current liabilities
Provisions
(9)
160.1
121.4
Current liabilities
Trade payables
33.5
31.8
Tax
50.4
44.3
Other liabilities
9.9
8.5
Total equity and liabilities
387.1
307.2
Notes
(1) Revenue from business activities:
Revenue from business activities
20X8 ($M)
20X7 ($M)
Vehicles
588.0
526.0
Parts and accessories
39.6
36.8
Other
17.9
43.7
645.5
606.5
Other income includes gains on the disposals of tangible assets and income from the reversal of provisions.
Average number of employees:
20X8 (Draft)
20X7 (Actual)
Wage earners
484
499
Salaried employees
483
477
Apprentices and trainees
36
37
1,003
1,013
Other expenses include costs for warranties, administration and distribution, maintenance and insurance.
Interest income, net:
20X8 (Draft ($m)
20X7 (Actual $m)
Interest and similar income
16.8
25.1
Interest and similar expenses
(4.5)
(4.2)
12.3
20.9
Intangible assets include development costs, also franchises and industrial rights and licenses. During the year, $12.7 million (20X7 - $6.3 million) was spent on developing a new sports model, the Fox.
Property, plant and equipment:
Land and Buildings
Equipment
Assets under construction
Total
$m
$m
$m
$m
Cost
1 January 20X8
61.8
212.1
19.0
292.9
Additions
5.0
28.9
9.4
43.3
Disposals
0.0
(4.5)
0.0
(4.5)
Reclassification
3.0
8.9
(11.9)
0.0
31 December 20X8
69.8
245.4
16.5
331.7
Depreciation
Current year
1.9
18.4
0.0
20.3
Accumulated
28.7
178.5
0.0
207.2
Net book value
31 December 20X8
41.1
66.9
16.5
124.5
31 December 20X7
34.9
48.6
19.0
102.5
(8) Inventories comprise:
20X8 (Draft $m)
20X7 (Draft $m)
Raw materials, consumables and supplies
8.3
7.3
Work-in-progress
6.8
4.8
Finished goods
15.2
15.8
30.3
27.9
(9) Provisions mainly cover manufacturing warranty, product liability and litigation risks. Also, provisions have been established for deferred maintenance and IT reorganization.
The following additional information is available:
(i) Pavia has achieved record sales in 20X8 with the delivery of 10,153 vehicles (20X7 – 7,642 vehicles).
(ii) Although some sales are direct to individual customers the majority are ordered through dealers who take new vehicles on consignment.
(iii) Since 1 January 20X8 Pavia has offered 0% finance for three years on new vehicle sales in its most competitive markets.
(iv) The launch of the Fox has been postponed from late 20X8 to early 20X9 as internal trials have revealed that the doors are not sufficiently secure at high speeds.
(v) A car part required for the Cipeta model is bought-in exclusively from an overseas manufacturer. Deliveries of supplies have been unpredictable in 20X7 causing disruption to the Cipeta model assembly schedules.
Given all of the information above you are required to do the following:
In respect of the financial statements audit of Pavia Co for the year ending 31 December 20X8:
Identify and explain the risks of material misstatement to be taken into account in planning the final audit.
20X8
20X7
Note
Draft ($m)
Actual ($m)
Revenue
(1)
645.5
606.5
Other income
(2)
15.6
14.4
Changes in inventories
3.8
(16.4)
Cost of materials
(334.1)
(286.8)
Employee benefits expense
(91.0)
(83.9)
Depreciation
(3)
(29.8)
(23.6)
Other expenses
(4)
(116.3)
(100.6)
Interest income, net
(5)
12.3
(20.9)
Profit before tax
106.0
130.5
Income tax expense
(44.4)
(47.7)
Profit for the year
61.6
82.8
Explanation / Answer
Risk of material misstatement to be taken into account in planning the final audit.:it is responsibility of internal auditor and board of directors that they should provide true and fair view of its financial transaction in the books of accounts.In above financial report following points are to consider for material misstatement.material misstatement is related to the information present in financial stayement.material misstatement leads the financial statement users suffering from economical loss.Audit risk,control risk,inherent risk etc are increasing.commonly it is suggested to record all the material account in terms of asset seperately.if an asset occupies for more than 5petcent of total assets,it should be recorded seperately.when risk of material misstatement is high,the level of detection risk is lowered,increases the amount of evidence obtained fron substantive procedures.by doing so reduces the overall audit risk.forrisk assertion we have to consider that firm has complex transaction ,related party transaction,profit pressure,cash flow problems, debt convenantsaviolation.risk of material misstatement formula :inherent risk (low )*control risk(high).so this should be considered.
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