a) Evaluate business risks

½ mark for each risk identified (to max 4 marks) and up to 1½ further marks for explanation
 Up to 2 marks for calculation of margins, trends, etc

– High fashion items/high staff turnover in design team
 – Obsolete inventory and pressure on margins
 – Widespread geographical business model hard to control
 – Volume of e-commerce sales – ability of systems to cope
 – Security of e-commerce operations
 – Tax and regulatory issues on e-commerce
 – Foreign exchange risk on new overseas transactions
 – Outsourcing of phone operations – quality issues
 – Outsourcing of phone operations – unpopular with customers
 – Long-term sustainability of outsourced function
 – Ethical Trading Initiative – supply chain issues
 – Potential restrictions on operation of distribution centres
 – Financial performance – general comments on revenue/profitability/margins

Max marks 15

Professional marks: 1 for presentation, 1 for quality of evaluation 2

(b) Financial statement risks

½ mark for identification, up to 1½ further marks for explanation, FIVE matters only  ½ mark for reference to relevant accounting standard (1 mark max)

– Inventory valuation (IAS 2)
 – Inventory existence (IAS 2)
 – Unrecorded revenue 
 – Capitalisation of IT/website costs (SIC 32)
 – Valuation of brand name (IAS 38)
 – Valuation of properties (IAS 36)
 – Recognition of provision/contingent liability (IAS 37)
 – Opening balances and comparatives (1 mark only)

Max marks 10