AP 3.12 in additional stock options Required n recognition of the change in the
ID: 2329935 • Letter: A
Question
AP 3.12
in additional stock options Required n recognition of the change in the company's results. recogni d65%, and the b oard has happily approved payment of the CEO's bonuses and granted the CEO es, pressures, and opportunities to commit financial reporting fraud, and at tions to justify a fraud in the above case. udes and rationaliza I reporting would you suspect could have occurred at Vaughan? I skepticism would be critical in assessing the risk of fraud. Fraud risk b. What fraudulent financial c. Expl wo ain why professiona by a global r- hts. The from customers" (a liability AP3.12 (LO 6) fi Moderate An airline company has been adversely impacted he ai ancial crisis that is negatively affecting business travel. In addition to lower overall demand, t ne com pany faces increased competi d in advance customers" hen passengers or freight are uplifted tion from other airlines who are heavily discounting flig atrline company policy for revenue is to credi "revenue receive tours and travel air tickets and land content are utilized. nt), and subsequently adjust that account to revenue when p note that revenue from he 2022 year shows a In preparing for the 2022 audit, you review the 2021 financial stateme passenger 6% decrease in revenue from passengers, and an s represents 8% of total revenue. Th e interim financial information for t % decrease in revenue from passengers in advance. lobal financial crisis has led to increased incidences of 11 You read in the financial press that the g o, and the majority of these frauds are co mmitted by company directors and senior managers. Required an why the revenue from passenger accounts in the income statement is at significant risk of fraud- ulent financial reporting by management. Source: Adapted AP3.13 (LO 6) was convi from the CA Program's Audit & assurance exam, May 2010. Challenging Research Th Research The auditor and the Ponzi scheme Bernard Madof cled in 2009 of running a Ponzi scheme, the biggest in US. history. A Ponzi scheme is essen- money frem new investors on a regular basis and using the cash to pay prom rereived by existing investors are theExplanation / Answer
Most of the stakeholders look at the revenue account to determine the economic position of the company. Since the airline company is facing stiff competition and the global airline market is also sluggish it may in order to fabirce its performance to look good alter the figures of the income statement.
Given the accounting policy adopted company can pull forward the sales by recording it as sales from current period even when the sales has not been materialised. This shall lead to window dressing of accounts where revenue looks good, which infact is not.
As an auditor this require the extra vigillance to ensure that standards for revenue recognition are properly followed by the airline compamy.