(a) Risk of material misstatement
Up to 3 marks for each significant risk of material misstatement evaluated unless otherwise indicated.

Marks may be awarded for other, relevant risks not included in the marking guide.

In addition, ½ mark for each relevant trend or calculation which form part of analytical review (max 3 marks).

Materiality calculations should be awarded 1 mark each (max 3 marks).
 – Current ratio – related audit risks, e.g. overstatement of inventory/receivables, understatement of current liabilities
 – Gearing ratio – indicates that long-term liabilities could be understated
 – Improvements in margin and ROCE – possible overstatement of profit given the discounts offered to customers
 – Online sales – trend indicates possible overstatement of revenue
 – Risk of management bias due to owner-management and desire for dividend payments
 – Discounts offered on online sales
 – Research and development – risk that expenditure should not have been capitalised and that research and development costs have not been distinguished
 – Impairment – risk that the value in use and therefore impairment loss is not correct (max 4 marks for detailed discussion)
 – Provision for restoration of the impaired property – provision should not have been made
 – Intangible assets – whether amounts should have been capitalised
 – Bearer plants/biological assets/inventory – potentially difficult to distinguish the assets, with implications for their valuation

Maximum marks 20