Question 1b
You are an audit manager in Ribi & Co, a firm of Chartered Certified Accountants. One of your audit clients Beeski Co provides satellite broadcasting services in a rapidly growing market.
In November 2005 Beeski purchased Xstatic Co, a competitor group of companies. Significant revenue, cost and capital expenditure synergies are expected as the operations of Beeski and Xstatic are being combined into one group of companies.
The following financial and operating information consolidates the results of the enlarged Beeski group:
| 2006 (Estimate) | 2005 (Actual) | |
| Revenue | 6,827 | 4,404 |
| Cost of sales | -3,109 | -1,991 |
| Distribution costs and administrative expenses | -2,866 | -2,866 |
| Research and development costs | -25 | -22 |
| Depreciation and amortisation | -927 | -661 |
| Interest expense | -266 | -266 |
| Loss before taxation | -366 | -172 |
| Customers | 14·9m | 14·9m |
| Average revenue per customer (ARPC) | $437 | $556 |
In August 2006 Beeski purchased MTbox Co, a large cable communications provider in India, where your firm has no representation. The financial statements of MTbox for the year ending 30 September 2006 will continue to be audited by a local firm of Chartered Certified Accountants.
MTbox’s activities have not been reflected in the above estimated results of the group. Beeski is committed to introducing its corporate image into India.
In order to sustain growth, significant costs are expected to be incurred as operations are expanded, networks upgraded and new products and services introduced.
Required:
Explain what effect the acquisitions will have on the planning of Ribi & Co’s audit of the consolidated financial statements of Beeski Co for the year ending 30 September 2006. (10 marks)